Indonesian Ore Makes Comeback

Nickel prices recovered ground at the end of June, but failed to extend gains beyond the previous LME three-month high, posted May 22, of US$9,446/tonne. Nickel had been partially buoyed, along with other commodities, by a weaker U.S. dollar, which declined by about 2% in late June on a trade-weighted basis. While the dollar has recovered slightly, nickel prices have been particularly battered more recently by expectations of further surges in supply. On July 11, the three-month price was again flirting with the US$9,000 level as sentiment took a fundamentally-driven dive.

In January 2017, the Indonesian government announced it would be relaxing its ore export ban, which has in place since January 2014 for a handful of companies that had committed to building smelter capacity. So far, state-owned PT Antam (Persero) Tbk., which is one of the largest mining companies, has been given the green light to export 2.7 million tonnes of nickel ore and is now looking to export a further 3.7 million tonnes. Moreover, in early July, the Indonesian government announced that it had permitted PT Ceria Nugraha Indotama to export 2.3 million tonnes over the next 12 months.

The prospects for an abundance of low-grade ore from the Philippines and Indonesia being available to Chinese smelters producing nickel pig iron are likely to keep nickel prices under pressure. As the supply situation develops further, we may need to further adjust our global balance and price outlook, although we had already factored in some of this extra material. After a weaker-than-anticipated second quarter, we have modestly revised down our annual 2017 price forecast for LME three-month nickel. We now expect prices to average US$9,741/t from our previous expectation of US$9,765/t.

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