SYDNEY/JAKARTA May 19 When Indonesia vowed to
halt exports of mineral ore to wring more profit from its rich
resources, many predicted the policy would be an economic
But in the case of nickel, at least, Indonesia is proving
its doubters wrong as the price of the metal soars and Chinese
producers starved of raw material begin to ship equipment for
processing plants to the Southeast Asian nation.
Just four months after a ban on ore exports, one smelter is
under construction and equipment for two others has been shipped
from China to Indonesia, including a dismantled blast furnace,
industry sources told Reuters.
At least two other firms plan to start construction of
processing plants by year-end or shortly after, amid fears that
China's nickel-pig iron industry is running out of raw material.
"It's been a success," Energy and Mineral Resources Minister
Jero Wacik told Reuters.
One Chinese firm that told Reuters it expected to start
production by year-end at the earliest said the smelter would
produce nickel pig iron with 4 percent metal content, which then
would be shipped back to China for production of higher value
grades with 10-15 percent metal.
Analysts say new plants on the drawing board mean
Indonesia's nickel production could triple by end-2016, with
investors starting to believe that Jakarta will hold the line on
its ban despite past policy flip-flops.
Indonesia, the world's biggest nickel ore exporter before
the ban, has traditionally shipped thousands of tonnes of ore to
customers such as China, who turn it into alloys such as nickel
pig iron, a key ingredient in stainless steel.
January's ban on nickel ore exports aimed to create a local
processing industry, with Jakarta effectively foregoing $1.5
billion of ore shipments a year to move up the value chain.
Early market reaction was muted as traders eyed large
stockpiles built up in China and Japan and raised doubts that
Indonesia would stick to its plan. But nickel prices have since
shot up as much as 50 percent as nickel pig iron and
ferro-nickel producers fretted about longer-term shortages.
"I think people are starting to believe that the ban will
stick in place," said Andrew Mitchell, principal nickel analyst
for Wood Mackenzie in London
The surge in nickel prices has benefited nickel
producers worldwide, but is also helping to cushion the impact
of the ore ban on Indonesia's export earnings.
Increased earnings for local producers PT Vale Indonesia
and PT Aneka Tambang (Antam), who already operate
nickel refineries, could offset about half of the lost export
revenue from nickel ore exports, says Macquarie.
At current prices, it estimates Indonesia will recover
roughly half of the $1.5 billion it earned last year from sales
of 585,000 tonnes of nickel in ore, but for less than a quarter
of the same reserves.
"If they persist with the ban, the nickel price could hit
30,000 a tonne," said Macquarie's Jim Lennon in London. "It
always was a smart idea - the trick was to get people to
Indonesia says three nickel pig iron plants have been
registered for exports, but has not given details, with several
more expected to be completed by the end of the year.
"Nickel prices now are how much, $21,000? At the end of last
year they were still $13,000. So, build those smelters quickly,"
Coal and Minerals Director General Sukhyar told reporters last
At the vanguard, Sulawesi Mining Investment, a joint venture
between China's second largest stainless steel company Tsingshan
and Indonesia's PT Bintang Delapan Group, is building what will
be one of the biggest plants in the country, having starting
planning after Jakarta first flagged the new rule in 2009.
The project, partly funded by a $384 million loan from
China's policy lender State Development Bank, will produce
300,000 tonnes of ferro-nickel in Indonesia's Morowali county.
Minerals consultancy CRU estimates there will be six or
seven plants under construction by the end of 2014 and is
following 20 projects, with most expected to be smaller blast
furnace type operations, said Beijing-based analyst Peter Peng.
Many of the planned smelters will pair local Indonesian
firms with Chinese backers.
"Everybody had thought these NPI projects would take a fair
amount of time but it looks like some of them may be built
faster than expected and at least one or two should be ready
next year," said Shanghai-based Citi analyst Ivan Szpakowski.
A second firm, China Hanking Holdings, said it has
shipped some equipment to Indonesia for a planned smelter and
hopes to win a nickel ore export licence once Indonesia
authorities see its smelter plans are serious.
"We haven't started the commencement of any construction
yet," a spokesman said. "The reason why we're shipping equipment
there is to show the government we are really sincerely looking
forward to cooperating with them."
A third firm, Ibris Nickel expects to partner with a Chinese
firm to build a plant, with the first phase of production
scheduled for the second half of 2015, two sources said.
Consultancy Wood MacKenzie expects about 16,500 tonnes of
processing capacity to be completed this year climbing to
190,000 tonnes of nickel capacity by the end of 2016.
This would add to 100,000 tonnes of sales expected by
existing producers at the end of this year, although Mitchell
cautioned it was "very difficult to really be certain exactly
what the actual stage of development is."
But Indonesia's actions had the full support of traders and
nickel miners, forty percent of whom were losing money six
months ago, analysts said.
"The bottom line is, if it is reversed, it's game over for
nickel and for investments in smelters in Indonesia," Mitchell
(Additional reporting by Polly Yam in HONG KONG; Editing by