Indonesia’s ban on mineral ore exports will cut nickel supplies while allowing Freeport-McMoRan Copper & Gold Inc. (FCX) to keep exporting copper concentrates. Nickel and the rupiah rallied, while shares of Nickel Asia Corp. (NIKL), which accounts for about a third of Philippine output, climbed.
President Susilo Bambang Yudhoyono signed a regulation implementing the ban, Energy and Mineral Resources Minister Jero Wacik told reporters on Jan. 11, after a meeting of ministers in West Java. The rule, which went into effect yesterday after months of wrangling, prohibits all raw ore exports from companies that are not on an approved list for planning local processing, according to Wacik.
While the decision eases concern that copper shipments will be disrupted, it’s pushed up nickel futures as Indonesia is the biggest mined producer. The ban is part of a wider policy in Southeast Asia’s largest economy to boost state revenue by turning Indonesia from an exporter of raw commodities into a manufacturer of higher-value products. The navy stepped up patrols to enforce the curbs, a commander told the Jakarta Post.
“The law should clearly be bullish for nickel, as we should expect to see significant lower volumes of ore flow from Indonesia to China,” said David Wilson, an analyst at Citigroup Inc. in London. Chinese ore stocks will become more valuable, and many producers will not be able to use lower-grade nickel ore from the Philippines as an alternative, said Wilson.
Nickel Rallies
Nickel jumped as much as 2.4 percent to $14,190 a metric ton on the London Metal Exchange, the highest level since Dec. 30, and traded at $14,135 at 4:07 p.m. in Singapore. The rupiah surged as much as 1.1 percent to 12,031 per dollar and was at 12,063. Shares of Nickel Asia climbed 5.7 percent to the highest level since July.
The ban on nickel ore, if fully enforced, may help to drive the global market into deficit in 2015 for the first time since 2010 as output of nickel pig iron in China drops, according to Barclays Plc. The metal used in stainless steel may average $15,000 a ton this year and $17,000 in 2015, analysts including Gayle Berry wrote in a report dated today.
The rule reinforced a 2009 law that called for greater state benefit from the industry and local metals processing. The government first limited exports in 2012 and then faced a series of legal challenges, leading to flip-flops on implementing the ban that created uncertainty over whether it would go ahead. Indonesia accounts for 18 percent to 20 percent of global nickel supply, 9 percent to 10 percent of aluminum from bauxite and 3 percent of copper, Goldman Sachs Group Inc. estimates.
Product Mix
Newmont Mining Corp. (NEM) and Freeport, which runs the world’s second-largest copper mine in eastern Indonesia, can keep exporting concentrates, said Wacik, in a turnaround from government comments last year that called for a halt to exports of concentrates, a basic product mix of copper and gold ores that have been crushed, milled and concentrated.
More than 60 companies that are planning to process ore domestically will also be allowed exports, said Wacik, without giving the purity levels that need to be met. Details will be published later, he said.
“Indonesia appears to be willing to allow miners who do some degree of processing or have definite plans for smelters in place to keep exporting but is still acting tough with the little guys,” Keith Loveard, a risk analyst at Jakarta-based Concord Consulting, said yesterday, pointing to about 4,000 companies with mining business licenses.
The naval base that covers the Riau Islands is intensifying patrols to prevent ore from being shipped overseas, the Jakarta Post reported today, citing the base’s commander, Rear Admiral Agus Heryana. The Riau islands and region of West Kalimantan hold most of country’s bauxite resources, the report said.
Increased Demand
PT Vale Indonesia (INCO) and PT Aneka Tambang, which mine nickel and have some processing facilities in Indonesia, climbed 5.4 percent and 2 percent today. In Sydney trading, Alumina Ltd. jumped 3.6 percent on prospects for increased demand after the ban went into effect.
Freeport Indonesia has concentrate shipments set for Spain and the Philippines and expects export permits to be issued soon, President Director Rozik Soetjipto said yesterday. Newmont’s local unit is operating normally while it waits for the official regulation document, spokesman Rubi Purnomo said.
The Energy and Mineral Resources Ministry proposed Jan. 8 companies be allowed to continue shipping mineral concentrates for three years. The minimum level of copper in the concentrates may be set at 15 percent, according to Soetjipto, less than the percentage produced by Freeport and Newmont in Indonesia.
Biggest Producer
Aluminum Corp. of China Ltd., the nation’s biggest producer of the metal, said Jan. 10 that it stockpiled bauxite before the ban even as it expected the curbs to be diluted. Indonesia will reopen exports as it has such a big economic impact, according to Li Haiming, president of the Hong Kong unit.
The government may not backtrack on bauxite and nickel as it is confident processing plants will come online, said Shaun Levine, an analyst at consultancy Eurasia Group in Washington.
Indonesia’s nickel-ore exports are mostly in the form of laterite with 1 percent to 2 percent nickel, according to RBC Capital Markets. In China, the ore is processed into nickel pig iron, an alternative to the refined metal.
Nickel may average $15,500 this year, according to an ABN Amro Bank NV report on Jan. 3 that cited the curbs in Indonesia and improved demand spurred by a global economic recovery. Last year’s average was $15,081 as prices touched a low of $13,205 on July 9. Refined nickel prices fell 19 percent on the London Metal Exchange in 2013, dropping for a third year amid a glut to post the worst performance among major base metals.
Market Trough
“We see the beginning of this year as the trough in the nickel market cycle,” the Barclays analysts wrote. The global market will shift from a surplus of 41,000 tons in 2014 to a deficit of 36,000 tons in 2015, and that should support a rebound in prices after a three-year downtrend, they wrote.
Chinese stockpiles of nickel ore are large enough to sustain the output of nickel pig iron through until at least the final quarter of this year, RBC Capital Markets said Dec. 19, citing an estimate from researcher Wood Mackenzie. Industry Minister M.S. Hidayat told reporters in Jakarta Jan. 8 China had 20 million tons of nickel ore in reserves ahead of the ban.
The curbs could worsen Indonesia’s 2014 current-account position by as much as 0.3 percent of gross domestic product, Citigroup Inc. said last month, while Nomura Holdings Inc. said it will cost at least $5 billion in export revenue.
Main Winner
The rupiah, Asia’s worst-performing currency in 2013, will probably be the main winner given the ban was diluted, Dariusz Kowalczyk, a senior strategist at Credit Agricole CIB in Hong Kong, said in a research note.
Nickel and bauxite account for about 48 percent of total mineral exports, said David Sumual, an economist at PT Bank Central Asia in Jakarta. If the ban had been implemented in full, the current-account deficit would increase about 0.6 percent of GDP, Sumual said.
“I think the rupiah has priced in for the total ban, meaning 0.6 percent of GDP, while the impact of the ore ban on the current-account deficit should only be 0.25 percent of GDP,” Sumual said.
The final decision reduced the impact of the rule on the mining industry and economy before national elections this year. Yudhoyono cannot run for a third term and has no clear successor, with Hatta Rajasa, coordinating minister for the economy, Trade Minister Gita Wirjawan and State-Owned Enterprises Minister Dahlan Iskan among those vying to be potential candidates.