Nickel pricing comes down to Indonesian policy

Indonesia's position as a nickel mining and smelting powerhouse enables the country to almost single-handedly move the price of the metal by managing supply, analysts told S&P Global Commodity Insights.

Bahlil Lahadalia, minister of energy and mineral resources in Indonesia, announced plans Oct. 18 to regulate the country's nickel ore supply and demand to help bolster prices. The island nation produced an estimated 53.1% of the world's mined nickel in 2023, according to S&P Global Market Intelligence data. Indonesia's leap into position as a world leader in nickel has driven down prices for the base metal and limited the impact of other efforts to manage supply.

However, bureaucratic delays in issuing permits have slowed ore production and Indonesian smelters are buying ore from the Philippines, undermining government policy.

Indonesia has been reaping the benefits of its 2020 ban on nickel ore exports, which attracted billions of dollars of foreign investment in the metals and mining sector and the electric vehicle supply chain.

"Indonesia has a strong influence on nickel supply. At the level of nickel contained in mine production, the country is expected to contribute 60-65% of global output," Adrian Gardner, principal analyst of nickel markets at Wood Mackenzie, told Commodity Insights.

Gardner noted that the Indonesian nickel industry is big enough to change the price as any disruption, or potential threat of disruption, to Indonesian supply can affect global markets.

"We have seen on several occasions that, when Indonesia stopped or restarted ore exports and threatened to stop nickel pig iron and intermediate product exports, there was a reaction in nickel prices," Gardner said. "The government sets the rules, and the rules are the tools."

Indonesia in control

Indonesia, which has been producing nickel for decades, expanded its smelting capacity as it banned exports of higher-grade ore in 2014 followed by a wider export ban in early 2020. Indonesia hosted 44 nickel smelter operations as of September, according to the country's Directorate General of Mineral and Coal, compared to three nickel smelters in 2014.

The country's expanding smelting capacity has dramatically increased global production and pushed down prices. The London Metal Exchange cash price for nickel closed Nov. 11 at $15,852.72 per metric ton, down 48.8% from a 2023 high of $30,958/t on Jan. 3, according to S&P Global Market Intelligence data.

The market downturn has led some companies to mothball operations. First Quantum Minerals Ltd. placed its Ravensthorpe nickel mine on care and maintenance, and BHP Group Ltd. suspended its Nickel West operations and West Musgrave nickel project, but with little impact on the nickel price. All three nickel properties are in Australia.

Concerns about mineral depletion are one potential reason behind Indonesia's plans to manage its nickel ore supply and demand, said William Talbot, principal analyst of nickel and cobalt at Benchmark Mineral Intelligence.

"Different companies are going to be impacted in different ways, particularly around where they can source more ore," Talbot said. "I think the Indonesian government wants to make sure that they're using those reserves and resources the right way."

Talbot added that the Indonesian government is pushing to maximize its role in the EV supply chain.

The nickel price spiked in March 2022 after an investor and major nickel producer provoked a short squeeze in the market, leading the London to suspend nickel trading for about a week.

Smelters look to Philippines

Nickel smelters in Indonesia have been facing a shortage of ore due to government licensing issues, increasing the premium that must be paid to secure the raw material, Bloomberg News reported Oct. 18.

"It is the case that the tightening of ore exploitation licenses this year has meant that some processing facilities have been short of suitable ore versus their original production plans," Gardner said.

Indonesia extended the validity of companies' mining plans, known locally as RKAB, to three years from one year in late 2023. The move has reduced the frequency of quota reapplications but led to longer clearance times.

"We believe the problems with the approval process are due to bureaucratic delays related to the new RKAB process and are not deliberate or due to bureaucratic incompetence," said Jason Sappor, a senior analyst on Commodity Insights' Metals and Mining Research team.

Tight nickel ore availability in Indonesia has pushed some companies in the country to import nickel ore from the Philippines, which is the second-largest producer of mined nickel, Commodity Insights analysts said in the latest Commodity Briefing Service report on the metal.

Data from S&P Global Market Intelligence Global Trade Analytics Suite showed that Indonesia's nickel ore imports from the Philippines in January–August ballooned to 5.3 million metric tons, compared to 53,904 metric tons in the same period of 2023, according to the report.

"I think we are seeing the combination of actual consumption and stockpiling of these imported ores to allow both continued use of downstream processing facilities in Indonesia and to have some degree of ore supply protection in case the Indonesian government takes further license action," Gardner said.