Here’s Why Nickel Prices Fell Sharply This Week

January 13th, 2017 by Trefis Team
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Nickel prices fell nearly 5% on January 12, as the Indonesian government eased previously imposed restrictions on the export of nickel ore from the country. [1] The following chart illustrates the dramatic decline in the spot price of the metal.

Nickel Prices Jan 2017

Nickel Spot Prices, Source:LME

This is likely to have ramifications for Vale, which in addition to being the world’s largest iron ore producer is also among the largest producers of nickel. The following graph illustrates the scale of Vale’s nickel shipments.

Nickel and Indonesia

Indonesia used to be the world’s largest exporter of nickel in the world before 2014, when a set of regulatory changes restricted mineral exports from the country. [1] Nickel is used in the production of stainless steel and several alloys. China is the world’s largest importer of the metal and Indonesia used to be the largest supplier of nickel to China.

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The Indonesian government introduced regulatory changes impacting its mining industry in 2014 aimed at boosting domestic mineral processing capacity. [2] The regulatory changes initially prohibited companies from exporting unprocessed ores from Indonesia and mandated companies to develop smelting capacity in Indonesia. However, as a result of protests from the mining industry, the country allowed the conditional exports of certain minerals such as copper. Though the country eased restrictions on certain mineral exports, its nickel export ban has remained in place since 2014.

While the government’s actions have boosted mineral processing within Indonesia, a decline in mineral exports has also adversely impacted the government’s revenue from the same through taxation. The easing of restrictions on mineral exports could have been partly aimed at bridging the government’s budget deficit. [3] Nickel miners now have to dedicate 30% of their smelting capacity towards the processing of low-grade ore, but to the extent that smelting capacity is lacking within Indonesia, are permitted to export nickel ore. [3] As per a report by Reuters, the easing of restrictions on nickel exports could translate into 15 million metric tons of nickel ore exports from Indonesia in 2017, which is around one-fourth of 2013 export levels. [3] Though the extent by which Indonesian exports boost global supply of nickel remains to be seen, a resumption of exports from the erstwhile largest producer of the commodity is likely to result in a supply surplus and negatively impact prices of the metal.

Have more questions about Vale? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Vale
Notes:
  1. Indonesia Revises Mining Regulations, Wall Street Journal [↩] [↩]
  2. Indonesia Bans Ore Exports in Push for Metal Smelting, Bloomberg [↩]
  3. Indonesia eases export ban on nickel ore, bauxite, Reuters [↩] [↩] [↩]