If I had a nickel…
Nickel has joined the queue of commodities suffering from a major supply-side shock. Indonesia’s ban on nickel ore exports is likely to push the market into a sizeable deficit. However, this market is remarkably resilient. High inventories and alternative sources should see this supply-squeeze subside, limiting the upside in prices from here.
The Indonesian government’s proposed nickel ore export ban was due to start in 2022, but has been brought forward to 1 January 2020. The subsequent panic buying saw prices hit USD18,000/t, levels not seen since 2014. That was, not surprisingly, when Indonesia last banned the export of minerals.
Indonesia exports about 20,000t a month (or 240,000t per year) of nickel ore, almost exclusively to NPI producers in China. This is equivalent to 8–10% of world mine production. However, in the short-term, the market can utilise Chinese port stockpiles. We estimate these could total about 100,000t of contained nickel, or five to six months of consumption. We suspect there is also about four to six months of inventories held by nickel pig iron (NPI) producers in China. The Philippines may also be able to increase output, although it won’t be as responsive as it was in 2014. Indonesia-based Chinese producers will also ramp up NPI.
This means that the physical impact of the supply shock may not be apparent until mid-2020. Even so, we estimate the market will move into a 180,000t deficit in 2020. At 7% of demand, this is significantly higher than the supply-induced deficit in iron ore. This should shield nickel from the type of pullback in prices that iron ore has experienced this month.
Chart of the week
Inventories are much lower than during the last supply shock, in 2014
Source: Beijing Custeel
