Nickel’s 56% Rally Spurs Mine Restarts Amid Ore Ban

Indonesia’s ban on nickel ore exports is resonating globally as prices climb to the highest since 2012, prompting companies from Avebury Nickel Mines Ltd. to Poseidon Nickel Ltd. to restart operations at idled mines.

Avebury, based in Perth, plans to reopen a deposit in Tasmania six years after it was mothballed. Poseidon is preparing to resume production at a mine in Western Australia, while Panoramic Resources Ltd. may restart mining at its Copernicus deposit in the same state. More producers globally may reactivate facilities as prices extend gains, according to OAO GMK Norilsk Nickel, the world’s largest supplier.

Nickel, used to make stainless steel, rallied as much as 56 percent this year to $21,625 a metric ton after Indonesia halted ore exports in January to compel investment in local processing plants. While the restarted mines such as Avebury’s will add to supplies, the additional production won’t be enough to prevent the global market from dropping into a deficit, with Goldman Sachs Group Inc. to BNP Paribas SA forecasting higher prices.

“Australia is certainly at the forefront of the potential for restarts,” said Stephen Briggs, a metal strategist at BNP Paribas in London, the second most-accurate nickel price forecaster in the eight quarters to June, according to rankings compiled by Bloomberg. “Nickel is one of my top picks,” he said in an Aug. 4 interview, describing $25,000 as plausible.

Avebury Mine

The metal climbed 35 percent to $18,750 a ton on the London Metal Exchange this year, beating all other base metals. The LMEX Index of six metals rose 3.2 percent in 2014 as the Bloomberg Dollar Spot Index added 0.2 percent. The MSCI All-Country World index of equities advanced 2.8 percent and the Bloomberg Treasury Bond Index gained 3.9 percent.

Avebury may produce as much as 12,000 tons of concentrate a year, according to Chris Daws, chief executive officer, referring to semi-processed metal. The cost of reopening the mine in Tasmania will be A$22 million ($20 million) to A$25 million, he said. The facility, mothballed since February 2009, is scheduled to restart in the first half of 2015.

Nickel demand will outstrip supply by 97,100 tons in 2015, ending four years of gluts, according to Morgan Stanley, which sees shortages through to 2017. Goldman Sachs forecasts a 200,000 ton deficit next year and last month raised its 2015 price forecast 29 percent to $22,000.

Mine Revival

About 220,000 tons of capacity was idled over the past six years on lower prices, Daniel Morgan, an analyst at UBS AG, said in a June 30 report. Excluding 50,000 tons that was shuttered for safety issues or because reserves were depleted, some of the remaining 170,000 tons may now be revived, said Morgan, who still predicts a deficit at 99,000 tons next year.

Indonesia’s ban will cut mined output from Southeast Asia’s largest economy to 8.9 percent of world supply from mines in 2015 from 29 percent last year, Morgan Stanley said in a July 8 report. Most Indonesian ore was shipped direct to China to make nickel pig iron, a lower-cost substitute for the refined metal. The curb more than doubled ore prices this year, according to data from Shanghai Metals Market. That’s boosted production costs and spurred refined prices.

Even as the deficit looms, reserves tracked by the LME expanded to the biggest ever this year, rising 22 percent to 318,798 tons on Aug. 8. Recent increases were probably caused in part by metal shipped out of China amid constraints on financing, according to Nicholas Snowdon, an analyst at Standard Chartered Plc. A probe into non-LME holdings in China’s Qingdao port in June led banks to cut back on such deals.

Limit Gains

Prices dropped as much as 18 percent from May, declining last month for the first back-to-back retreat in a year. The volume of stockpiles will probably limit gains in prices until the market starts to move into deficit, possibly from 2015, according to Melbourne-based National Australia Bank Ltd.

Users in China are already looking to replace lost supply. Ore imports from the Philippines were 53 percent of total purchases in the first half, from 35 percent a year earlier, customs data show. China’s imports reached a record 7.82 million tons in November as users secured supply before the ban.

Processing capacity is being built in Indonesia and there will eventually be a large smelting industry in the country, Goldman Sachs said in a July 23 report. Local output of nickel pig iron, tracked in refined-metal terms, will rise from 1,000 tons this year to 46,000 tons in 2015, Morgan Stanley said.

No Signs

Indonesian President Susilo Bambang Yudhoyono banned raw mineral ore exports in January to boost local processing and has given no signs that the curb will be relaxed as companies start to construct plants across the Asian archipelago. Joko Widodo, the Jakarta governor who was elected last month to succeed Yudhoyono isn’t likely to ease the ban, Briggs, the BNP strategist, said in an interview.

Ore stockpiles built up by makers of nickel pig iron in China will be exhausted next quarter, according to Australia & New Zealand Banking Group Ltd., which said Philippine supply won’t be enough to fill the void. Producers in China are running at 59 percent of capacity this month, down from 67 percent in April, according to Beijing Antaike Information Development Co., a state-backed researcher. Nickel pig iron output in China will drop 45 percent to 212,000 tons in 2015, Morgan Stanley says.

Global stainless-steel production is set to climb 5.7 percent to a record 40.2 million tons this year, MEPS (International) Ltd. said July 31. Output in China, the biggest producer, may rise 6.4 percent to 20.2 million tons, it said. The U.S., Europe and Japan will also add to supply, the Sheffield, U.K.-based consultant estimates.

Too Low

Prices are still too low given the market is set to shift to a deficit and the metal should trade at $20,000 to $25,000 so unprofitable producers break even, according to Anton Berlin, head of strategic marketing at Moscow-based Norilsk.

Nickel may climb 9.7 percent to average $19,346 a ton next year, Morgan Stanley estimates. Goldman Sachs’ 2015 forecast of $22,000 a ton would be the highest average price since 2011, and the New York-based bank said as much as $30,000 is possible should there be no relaxation of Indonesia’s curb.

“We saw the Indonesian ban as an opportunity for the nickel market,” said Avebury’s Daws. “The ability to turn on supply is limited and continues to be that way in a growing demand environment for stainless steel.”

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