(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Andy Home
LONDON Feb 28 Indonesia's January ban on the
export of nickel ore is, according to French nickel producer
Eramet, "good news and will eventually support nickel
Eramet Chairman and Chief Executive Patrick Buffet's view,
expressed in the company's annual results release, that the ban
"is a positive step towards restoring market balance" pretty
much sums up the consensus view of the market.
After all, the January halt to flows of nickel ore to
China's giant nickel pig iron (NPI) sector puts at risk an
estimated 482,000 tonnes, or around 25 percent of global supply,
according to estimates by analysts at Macquarie Bank.
("Indonesian Ore Ban - a Q&A", Jan. 14, 2014)
The ban is a potential game-changer for a market that is
suffering from chronic low prices resulting from high stocks and
The collective expectation, and hope for other nickel
producers, is that the ban will over time generate two
interlinked bullish trends.
If Chinese buyers up their intake of ore from the
Philippines, the only other viable source, the lower quality of
that ore will push up the cost of NPI production, effectively
lifting the global cost curve.
Then, since it is extremely doubtful that the Philippines
can fully replace Indonesian supply, China's NPI producers will
start to cut production as their stockpiles run out. That raises
the prospect of the country turning to more traditional forms of
nickel to keep its stainless steel sector humming.
It's an attractive narrative, so much so that the rest of
the nickel world is betting big on the Indonesian ban staying in
One of the stand-out features of the Q4 2013 reporting
season is the absence of fresh nickel production cuts.
The only significant announcement came from Eramet itself,
namely the decision to defer a decision on the Weda Bay nickel
project "given the deterioration observed on the nickel market
in 2013 and the short-term outlook for nickel prices."
Everyone else is apparently going to hang on in there and
hope the Indonesian ore ban eventually works its magic on
"restoring market balance".
The supply-side response to the recent low price environment
has been distinctly patchy.
Glencore-Xstrata has idled its ferronickel
operations in the Dominican Republic, not the first time that
this swing production has gone into mothball. It has also
shuttered some of its Australian mining operations, as has
Other than that the main casualty has been Mirabela Nickel
, currently in voluntary administration as it tries to
restructure its debt after being hit by the closure of one of
its main clients, the Fortaleza nickel smelter in Brazil.
Mirabela's own Santa Rita mine is still
operating but at a reduced rate.
The impact of such closures has done little to realign
supply with demand.
Global refined nickel supply still surged by almost 11
percent last year to 1,944,700 tonnes, tipping the market into
173,000-tonne surplus, according to the latest assessment by the
International Nickel Study Group (INSG).
That highlights the fact that rather than trimming
production, nickel producers are still ramping up new projects,
many of which were given the green light six years ago when the
nickel price surged to $50,000 per tonne.
Glencore, for example, is currently bringing on line its
60,000-tonne per year Koniambo ferronickel project in New
The first line came on stream last year, producing 1,400
tonnes of metal, with first ore to the second line due this
Vale is also lifting production at its Onca Puma
operations in Brazil after a one-year suspension of the new
project due to furnace blow-outs.
By December the plant was running at around 62 percent of
its nominal capacity of 25,000 tonnes per year (basis single
Then there are the high-pressure-acid-leach projects (HPAL),
several of which have experienced technical delays but most of
which are now also accelerating run rates.
HPAL PROJECTS RAMP UP
First Quantum's Ravensthorpe mine produced 29,000
tonnes of nickel in hydroxide last year, the best performance
since operations began in 2011. Guidance for this year is
33,000-37,000 tonnes, at or close to effective capacity.
The Ramu project in Papua New Guinea uses the same
production template as Ravensthorpe, producing a mixed hydroxide
that requires further refining.
Production last year of 11,400 tonnes of contained nickel
failed to meet guidance of 15,500 tonnes, according to minority
shareholder Highlands Pacific. But the plant was
operating at around 50 percent of nameplate capacity by the end
of this year and guidance for this year is for production to
rise to 22,000 tonnes before reaching full run-rates of 31,150
tonnes in 2015.
The Ambatovy project in Madagascar, operated by Sherritt
International, is more ambitious in terms of using HPAL
to produce refined metal.
It too has had teething problems, last year's production of
25,000 tonnes falling short of original guidance of 35,000
tonnes. But the plant is performing well enough for Sherritt to
have recently declared commercial production, defined as 70
percent ore throughput relative to capacity, and to be targeting
production of 40,000-45,000 tonnes this year.
That leaves only Vale's Goro, the original HPAL problem
child, still struggling to get to grips with what has proved to
be challenging technology.
There was another unscheduled shutdown at the plant during
the fourth quarter and although last year's production of 16,300
tonnes contained nickel was the best outturn yet in three years
of operations, it's still way short of nameplate capacity of
58,000 tonnes per year.
All of these new projects will continue to ramp up over the
coming months since operators need to recoup what were often
huge investment outlays.
The only constraint will not be price but technical
operation, particularly in the case of the HPAL producers.
Over the short term this will mean more surplus production
adding to already bloated stocks. Nickel inventory registered
with the London Metal Exchange continues to hit fresh record
highs and may only be the tip of a much bigger stocks iceberg.
You can start to understand why so much hope is being pinned
on Indonesia sticking with its ban on nickel ore exports.
Without this clear and present threat to China's NPI sector,
it's hard to see how the nickel market would rebalance itself
any time soon.
The problem, though, is one of timing. China has large
buffer stocks of ore sitting at its port and the world has large
buffer stocks of refined metal.
The expected bull impact on nickel price is going to be a
slow burner. So much so that there is a risk that things may
change in the interim, whether it be in the form of a policy
change in Indonesia following the parliamentary and presidential
elections in April and July respectively or new NPI producers
getting up and running in Indonesia.
That, after all, is the stated intention of the ban, to
force the mining sector down the path of value-add. And the cost
of building an NPI plant is a much lower hurdle than, say,
building a new copper smelter.
The consensus view that the Indonesian ban is "good" for the
nickel price is entirely logical but far from certain given the
time lag before Chinese NPI production starts to be tangibly
However, it's the only bull narrative in town and with no
more voluntary cutbacks and new projects coming on stream, the
rest of the world's producers are apparently betting the bank on
(Editing by David Evans)