Nickel climbed to the highest level in two weeks on fears that Indonesia’s ban on mineral ore exports will cut global nickel supplies while allowing Freeport-McMoRan Copper and Gold Inc. to keep exporting copper concentrates.
Indonesia’s President Susilo Bambang Yudhoyono signed a regulation implementing the ore ban, energy and mineral resources minister Jero Wacik told reporters on 11 January, after a meeting of government ministers in West Java. The rule, which went into effect after months of wrangling, prohibits all raw ore exports and permits shipments of minerals that are processed or refined in the country.
While the decision eases concern copper shipments will be disrupted, it’s pushing up nickel prices as Indonesia is the world’s 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 law should clearly be bullish for nickel, as we should expect to see significant lower volumes of ore flow from Indonesia to China,” David Wilson, an analyst at Citigroup Inc. in London, said after the decision.
The country accounts for 18% to 20% of global nickel supply, 9% to 10% of aluminum from bauxite and 3% of copper, Goldman Sachs Group Inc. estimates.
Futures advance
Nickel futures in London jumped as much as 2.4% to $14,190 a tonne on Monday, the highest level since 30 December, after gaining 3.3% on 10 January. Chinese ore stocks will become more valuable and many producers will not be able to use lower- grade ore from the Philippines as an alternative, said Wilson.
Shares of Nickel Asia Corp., which accounts for about a third of Philippine output, climbed as much as 4.1% to the highest intraday level since 5 November. Alumina Ltd jumped as much as 5.8% in Sydney trading on prospects for increased demand after Indonesia banned bauxite exports.
The rule reinforced a 2009 mining law that called for greater state benefit from the industry, local metals processing and reduced foreign participation. The government first limited ore exports in 2012 and then faced a series of legal challenges, leading to policy flip-flops on implementing the ban that created uncertainty over whether it would go ahead.
Newmont Mining Corp. 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.
Freeport permit
“More than 60 companies that are planning to process ore domestically will also be allowed exports,” Wacik said, without giving the purity levels that need to be met. “Details will be published later,” he said.
PT Vale Indonesia and PT Aneka Tambang, which mine nickel and have some processing facilities in Indonesia, climbed 5.4% and 2% on Monday after Wacik’s comments.
“Freeport Indonesia has concentrate shipments set for Spain and the Philippines and expects export permits to be issued soon,” its president director Rozik Soetjipto said on Sunday. “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 8 January companies be allowed to continue shipping mineral concentrates for three years. The minimum level of copper in the concentrates may be set at 15%, according to Soetjipto, less than the percentage produced by Freeport and Newmont in Indonesia.
Ore stockpiles
“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 on Sunday, pointing to around 4,000 companies with mining business licenses.
Aluminum Corp. of China Ltd, the nation’s biggest producer of the metal, said 10 January that it stockpiled bauxite before the ban even as it expected the Indonesian curbs to be diluted because of the potential economic consequences. Indonesia will re-open exports as it has such a big 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.
Nickel prices
Indonesia’s nickel-ore exports are mostly in the form of laterite with 1% to 2% nickel, according to RBC Capital Markets. In China, the ore is processed into so-called nickel pig iron, an alternative to the refined metal.
“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 on 19 December, citing an estimate from researcher Wood Mackenzie. Indonesia’s industry minister M. S. Hidayat told reporters in Jakarta on 8 January that China has 20 million tonnes of nickel ore in reserves ahead of the ban.
“Nickel may average $15,500 this year,” according to an ABN Amro Bank NV report on 3 January 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 9 July. Refined nickel prices fell 19% on the London Metal Exchange in 2013, dropping for a third year amid a glut to post the worst performance among major base metals.
Export revenue
“The curbs could worsen Indonesia’s 2014 current-account position by as much as 0.3% of gross domestic product,” Citigroup Inc. said last month, while Nomura Holdings Inc. said it will cost at least $5 billion in export revenue. “Nickel and bauxite account for about 48% of total mineral exports,” said David Sumual, economist at PT Bank Central Asia in Jakarta.
“If the ore ban had been implemented in full, the current- account deficit would increase by about 0.6% of GDP,” Sumual said. “Persistent trade and current-account deficits last year made the rupiah Asia’s worst-performer in 2013.”
“I think the rupiah has priced in for the total ban, meaning 0.6% of GDP, while the impact of the ore ban on the current-account deficit should only be 0.25% of GDP,” Sumual said.
The rupiah surged 1.1% to 12,033 per dollar as of 9:55am in Jakarta on Monday, the most in six weeks. “The currency will probably be the main winner given the the export ban was diluted,” Dariusz Kowalczyk, a senior strategist at Credit Agricole CIB in Hong Kong, said in a research note on Monday.
Job losses
The final decision reduced the impact of the rule on the country’s mining industry and economy ahead of national elections this year. Yudhoyono cannot run for a third term and has no clear successor, with Hatta Rajasa, the coordinating minister for the economy, trade minister Gita Wirjawan and state-owned enterprises minister Dahlan Iskan among those vying to be potential presidential candidates.
“It is stereotypical of President Yudhoyono’s leadership style these last few years, namely to wait until the last second to decide on something,” said Eurasia’s Levine. His decision to allow exports of some minerals and avert a possible economic catastrophe when the country can hardly afford it, is commendable.
As many as 800,000 jobs may be at risk from the ban on shipments, the Indonesian Chamber of Commerce and Industry said on 16 December. “It remains to be seen whether the government will be prepared to deal with the domestic fallout,” Loveard said.
“There is also the potential for more challenges in the courts so it is unlikely that this is the end of the story,” Loveard said. Bloomberg
Source:- livemint.com
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