Aug 13, 2022
Have Nickel Prices Hit A Bottom?

The Stainless Monthly Metals Index (MMI) dropped 8.87% from June to July. After nickel prices hit a bottom mid-July, they followed the base metal trend upward. By the beginning of August, however, the rebound had faltered, and prices resumed their descent.

Both last month’s increases and this month’s declines were extremely narrow. For that reason, prices appear consolidated within their current range, leaving no clear direction for the coming month.

Indonesia continues to pursue value adds to its nickel reserves. The hope is that doing so will aid in advancing its stainless steel and battery production capacity through export taxes on raw materials. Back in 2020, Indonesia banned the export of nickel ore entirely. The aim was to pressure its mining sector to invest in processing capacity.

That move forced China to replace ore imports with nickel pig iron and ferro-nickel in an effort to feed its stainless steel mills. Now, Indonesia plans to add an export tax to both of those products. This should provide the funding to allow for additional investment in its steel supply chain. Since 2021, Indonesia alone accounts for roughly half of all global nickel production.

The first export ban on nickel ore occurred in January 2014. Following the enforcement of that ban, nickel prices rose more than 39% throughout the first five months of that year. Eventually, market dynamics pushed prices lower once again. This dramatic price increase occurred despite weak economic conditions throughout parts of the world, including parts of the EU. For Indonesia, the ban had the intended effect as numerous companies in both Indonesia and China soon announced plans to construct NPI facilities on the archipelago. Outside of Indonesia, the ban forced countries like China, Australia, and Japan to pursue other sources of the metal. Before long, companies had secured direct shipping ore (DSO) from places like the Philippines and the Solomon Islands.

Indonesia substantially eased the ban in early 2017. This was due to several factors. One was a 2016 budget deficit. Another related to just how successful the ban was – spurring the development of nine additional nickel smelters (up from two). Ultimately, this led to a nearly 19% decline in nickel prices during the first half of 2017 alone.

Despite previously-stated intentions to reimpose the export ban in 2022, Indonesia instead expedited its resumption to January 2020. The decision aimed to bolster the domestic processing sector, which saw rapid development during that time. The move also caused China to increase NPI and stainless steel projects in Indonesia, as it dramatically limited ore imports. Chinese imports of NPI from Indonesia also surged as a result. However, the ban’s reinstatement did not trigger the same impact in terms of price trend. This was likely due to the emerging pandemic. Instead, prices remained within an overall downtrend that did not hit bottom until late March of that year.

The most recent announcement of potential export taxes comes as a result of the increased flow of NPI exports. It was supported by the forecasted increase in the number of domestic NPI and ferro-nickel processing facilities. In fact, the current estimate predicts an increase from 16 facilities to 29 over just five years. Still, a low-value product and limited exports of NPI will incentivize foreign investment in Indonesia as countries pursue battery and stainless steel manufacturing. It would also force importers like China to seek alternate sources for their supply.

However, the announcement has yet to spark any noticeable increase in prices. Instead, nickel prices have continued downward since their most recent rally stalled back at the start of August. According to Septian Hario Seto, Deputy Coordinating Minister For Maritime and Investment Affairs, the tax could begin as early as Q3 2022. That said, no formal date has yet been announced. When it comes, the announcement alone will likely trigger a sharp uptick in Indonesian NPI exports as countries prepare to absorb the tax. Of course, any actual response from nickel prices will likely follow the decided levy date.

On July 26, the European Commission launched a new anti-circumvention investigation. The subject was hot rolled stainless sheets and coils imported from Turkey, but which originated in Indonesia. EUROFER, the association of European steel producers, triggered the investigation over allegations that imports from Turkey violate the anti-dumping measures imposed against Indonesia. Indonesia remains home to several Chinese stainless steel manufacturers. At the moment, the case is expected to be concluded in the next nine months. Meanwhile, all imports of SSHR from Turkey will be registered with immediate effect as instructed by the EC.

Thus far, President Biden has largely continued the protectionist approach against China set forth by his predecessor. While the outcome of the investigation and subsequent response to its findings remain undetermined, Europe’s actions could inspire the U.S. to follow suit. After all, anti-dumping has always been a politically favored agenda. Furthermore, the investigation could cause materials once destined for Europe to instead shift toward the U.S. market. If that happens, it could embolden U.S. mills to lobby for political action to protect domestic interests.

By AG Metal Miner