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
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
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 -
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 Hohne-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
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
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: email@example.com or Roskill’s Website:http://www.roskill.com/nickel
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The new Nickel report contains 498 pages, 310 tables and 102 figures plus an appendix
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