Indonesia's Nickel Ban to Affect Non-stainless Industries More Than Others

LONDON, April 8, 2014 /PRNewswire/ --

Prices of nickel breached US$16,500/t last Friday, exceeding the price level recorded 12 months previously. Strong performance of the nickel price is forecast to continue as a result of reduced supply of lateritic ore following the Indonesian ban on raw material exports. According to Roskill, while industry analysts, INSG meetings and Metal Bulletin conferences have predominantly focused on the impact of the ban on the stainless steel industry, non-stainless uses of nickel such as plating and nickel alloys may be more at risk of a market upheaval.

Production of nickel pig iron (NPI) 

The direct effect of the nickel ban has been to cut off the Chinese NPI industry from its primary source of feedstock - the high-grade lateritic ore supplied by Indonesian mines. Roskill estimates that, in 2013, Chinese production of nickel pig iron was in the range of 460-500kt Ni. Around 80% of this is believed to have been produced in modern rotary kiln electric furnaces (RKEF), the preferred feedstock for which is ore with a minimum nickel content of 1.5%.

With nickel stocks estimated to have exceeded six to eight months of supply at the time of the ban's implementation and continued shipments of ore coming from the Philippines, NPI production in 2014 may be only slightly below 2013 levels. With further stockpiles of NPI held by producers and end users alike, growth in stainless steel output in China may slow down, but is unlikely to decline in the near term.

As for the prospects of NPI production in China beyond 2014, the main alternative source of lateritic ore is the Philippines. Its mine production has rivalled that of Indonesia in terms of nickel content and output is forecast to increase at a rate of 15-20%py. Although impressive by any standard, such growth would be insufficient to fully cover the gap left by Indonesia, even disregarding the lower grade of the ore mined in the Philippines.

Larger resources of lateritic ore are found in Australia, but at an average grade of only 0.75% Ni, while higher grade resources in New Caledonia are mostly captive to existing operations. The other two countries with sizeable resources are Cuba and Brazil, believed to contain over a billion tonnes of nickel resources each. But, even assuming that such countries would permit the export of large quantities of unprocessed ore, shipment of this material could add an estimated US$1,700/t to the production cost of NPI, rendering domestic beneficiation a more attractive proposition.

NPI produced in Indonesia is unlikely to fully replace Chinese production.  As of November 2013, the Indonesian government had announced receipt of 89 proposals, of which 50 are believed to remain on the table, around 10-15 of which are believed to be in permitting stage, and around three of which have reportedly broken ground.

The possibility of relocating obsolete blast furnace or RKEF plants from China could reduce construction time, but several of the smelters are likely to require the construction of dedicated power plants, adding both capital expense and time needed for completion. Capital expenditure and energy costs are expected to increase for these operations, but are partially offset by lower transport costs, and even at a 10-20% cost increase, forecast increases in the nickel price are sufficient to render such operations economic.

Taking these factors into account, Roskill suggests that NPI production in Indonesia could reach 170-230ktpy Ni by 2018, alleviating but not fully filling the gap left by reduced ore exports.

Stainless steel producers facing strategic decisions 

Despite the expected decline in NPI supply, Roskill points out that stainless steel mills have the luxury of being able to rely on a wide range of feedstocks. One alternative available to Chinese steel mills is to step up their reliance on metal scrap to complement their melting mix. As of 2013, China's external scrap ratio stood at 17%, compared to a world average of 45%.  Prior to the Indonesian nickel ban, Roskill forecast the scrap ratio to increase to 21% by 2018, a figure that it says it will revise upwards in the wake of expected stronger demand for secondary sources of nickel following Indonesia's export ban.

A second alternative is the use of Class I nickel, in the form of nickel cathode, or briquettes, typically grading above 99.8% purity. Such material typically accounts for only 35% of total nickel consumption in stainless sectors, as the premium paid for the refining process renders this type of feedstock relatively costly compared to lower-grade materials such as NPI or ferro-nickel. But, with reduced availability of these latter materials, stainless steel mills may increasingly turn to higher-grade material - the type of material of which over 280kt of stocks remain in LME warehouses.

A third alternative is the substitution of nickel-bearing austenitic grades of stainless steel (300-series) by ferritic and martensitic grades (200 and 400-series). From 2003 to 2008, the share of austenitic grades fell from 70.6% to 56.5%, as a result of substitution following the high price of nickel. While the percentage of steels accounted for by austenitic grades has stabilised in recent years, any renewed surge in prices could provide a new push towards substitution - both within stainless steels, and between stainless steels and competing materials.  

Non-stainless end users to feel the crunch 

This abundance of choice in terms of feedstock is dramatically different in non-stainless industries. The largest of these sectors include plating (8.3% of total primary nickel consumption), superalloys and other nickel alloys (4.2% and 7.2% respectively), as well as other alloy steels and a variety of chemical applications - including batteries.

These sectors generally favour - or, indeed, are critically dependent on - high-grade material such as nickel powder, pellets, briquettes, and cathode. Intuitively, given the lack of their reliance on ferro-nickel or NPI, one might assume these sectors to be relatively insulated from the effects of the Indonesian nickel ban, but in fact the opposite may be true, says Thomas Höhne-Sparborth, Roskill's senior nickel analyst.

In the past, these sectors accounted for the minority share of nickel consumption, but for the majority of consumption of Class I nickel.  In 2013, Roskill estimates non-stainless consumers of nickel accounted for 53% of consumption of high-grade nickel products. With stainless steel producers expected to turn to scrap and nickel cathode to offset decreased availability of NPI, purchasing managers looking for high-grade material may find themselves competing with a large contingent of Chinese stainless steel mills, on the market for alternative nickel feedstock, increasing the share of Class I consumption accounted for by the stainless sector and turning the market for Class I nickel into a "seller's market".

Uncertainty and volatility 

Taking these dynamics into account, to 2018, under the assumption of the Indonesian ban on raw material exports remaining in place, Roskill forecasts nickel prices to increase to US$24,350/t. But, with uncertainty over smelter projects in Indonesia, the state of the NPI industry in China, the possibility of demand destruction through substitution, and the large but unknown share of stocks of nickel held by investors, increased volatility, speculation and price spikes appear likely.

For a more in-depth analysis of the nickel market, its sources of supply, its end use sectors, and Roskill's outlook to 2018, see the latest edition of Roskill's Nickel Market Outlook.

Roskill's new Nickel: Market Outlook to 2018  contains full estimates for 2013, profiles on major producers and projects, an assessment of key market and technological trends, a discussion of the Indonesian export ban, and an outlook for supply, demand and prices to 2018. This latest edition from Roskill Information Services Ltd, 54 Russell Road, London SW19 1QL ENGLAND can be order by Tel: +44-20-8417-0087,  Fax +44-20-8417-1308, Email: info@roskill.co.uk  or Roskill's Website:http://www.roskill.com/nickel 

Note to editors 

Roskill Information Services Ltd. of London, UK is a leading provider of multi-client and bespoke market research services to the minerals and metals industry.

The new Nickel report contains 498 pages, 310 tables and 102 figures plus an appendix of international trade statistics.  It provides a detailed review of the industry, with subsections on the activities of the leading producing companies. It also analyses consumption, trade and prices.

For further information on this report, please contact Patrick Stratton, pstratton@roskill.co.uk or +44-20-8417-0087.