Indonesia’s ban on the export of raw ores will cause nickel prices to rise this year as regulation limits increases in production of lower-grade nickel pig iron, Western Areas Ltd.’s Managing Director Dan Lougher said.
“For nickel pig iron in China, the ban is basically going to cap production,” Lougher said today in a phone interview. “It’s going to prevent new guys coming on line in China. So it won’t increase with rising stainless steel demand.”
Southeast Asia’s largest economy, the world’s biggest producer of mined nickel, is restricting exports of unprocessed ore as it seeks to become a manufacturer of higher-value metal products. China, the world’s largest consumer, received about 52 percent of its nickel ore purchases from Indonesia in 2012, according to an RBC Capital Markets report dated Dec. 19.
Chinese producers of nickel pig iron, a lower-grade alternative to the refined metal, rely on Indonesian exports as they require ore with nickel content of above 1.8 percent and low iron content, Lougher said. Indonesian shipments are mostly in the form of laterite with 1 percent to 2 percent nickel, according to RBC Capital Markets. Lower-grade ore from the Philippines and stockpiled ores will probably be unsuitable as a substitute or lead to higher production costs, Lougher said.
“We’ll see positive price momentum,” Lougher said. “We know nickel can move very fast but we expect it to be a steady momentum upwards as we see the laterite stocks being dwindled.”
Nickel prices may rise to $7.50 to $8 a pound as supplies are constrained, Lougher said. Indonesia accounts for 18 percent to 20 percent of global nickel supply according to estimates from Goldman Sachs Group Inc. Refined-nickel futures jumped as much as 2.4 percent to $14,190 a metric ton today on the London Metal Exchange, the highest level in two weeks.
Perth-based Western Areas, which rose 8.9 percent to A$2.56 in Sydney, expects sales to increase by about $34 million for each $1 a pound gain in the price of nickel, Lougher said.