Following the outright ban on the country's nickel ore exports, we forecast the long-term price implications for the industry.
The dynamic of the global nickel market has changed dramatically following the decision made by the Indonesian government to ban the export of unprocessed nickel ores which was being shipped in large quantities to China to make nickel pig iron (NPI).
China is currently the principal driver of global nickel demand and, thanks to country's high stock levels of ore, the removal of Indonesian exports is not going to have a major impact in the current year.
However, there are very few nickel projects currently being developed as the global price has been too low to justify huge investment.
With few alternatives to compensate, the loss of Indonesian ore exports will eventually cause NPI production to decline as early as next year.
Our long-term forecasts show that 640,000 tons of nickel is required to meet global demand by 2030 - 300,000 tons of which is needed by China. So how will this be met?
We have modelled the outcome should this entire requirement have to be met from project developments in the western world and predict that a long-term price hike of $17/lb would be necessary in order to incentivise this level of incremental production and generate a 15% return on investment.
Yet realistically, we are certain that China will find a way of meeting its own domestic requirement – most likely through the creation of smelter developments in Indonesia– which would mean that the west would be only required to produce 340,000 tons.
As a result, we would see the long-term nickel price move to $11 to 11.50/lb in order to keep production profitable and still generate the necessary 15% pre-tax return incentive.
However, if Indonesia backtracks on the ban or even opens the export door even slightly, it won't force the investment they hoped and we will see the dynamic change once more.
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