Indonesia Prohibited Export of Laterite Nickel Ore, China’s Nickel Industry Responded Calmly

On January 12, the Indonesia government implemented new mining regulation to prohibit export of laterite nickel ore and other crude ores.This may cause certain impact on China’s nickel industry which is in a rapid development period. What countermeasures to adopt has become the hot spot and focal point of the nickel industry and iron & steel industry including stainless steel industry. Recently,when receiving interview from reporters of the China Metallurgical News, the marketing personnel of one certain ferronickel enterprise in Liaoning expressed the opinion that up till now,this regulation has not yet resulted in huge fluctuation of nickel prices in China’s domestic market, ferronickel manufacturers have begun to adopt positive measures, and responded calmly.

Indonesia is one of the countries with very rich mineral resources in the world, since the implementation of local autonomy in 2001,overseas investment in Indonesia’s mining industry has been declining. Many problems in mining industry laws clashed violently with Indonesia government’s macro positioning for developing its mining industry. After game playing among all sides, Indonesia Parliament approved the “Mineral and Coal Mining Law”,also called “The 4th Law”or the “New Mining Law”,which had taken effect in 2009.“The 4th Law” prescribed that beginning from 2014,Indonesia would prohibit export of metal ore including nickel ore, all raw material metal ore must be processed according to stipulations in the“The 4th Law”.

In recent years,in order to avoid risks,China’s import of laterite nickel ore has implemented diversification strategy, but Indonesia ’ s standing as a main origin place of resources remained unchanged, each year the laterite nickel ore imported from Indonesia accounts for 50%above in China’s total import volume.

According to this person, judging from the current market condition, the fact that Indonesia prohibited export of laterite nickel ore crude ore did not lead to panic in China’s domestic market,nickel product prices have not experienced rapid increase. For instance, at the weekend of the news release (January 17),electrolytic nickel price on the domestic market was 97100 yuan/t, prices of 10%～15% high grade ferronickel was 960 yuan/t ～ 980 yuan/t(nickel point); compared with domestic market prices at the end of 2013, electrolytic nickel dropped by 3000 yuan/t, price of 10%～15%high grade ferronickel changed not much.Because the Spring Festival holiday has just passed, at present there is no great variation in the market.

Industry insiders widely considered that supporting factors to guarantee stability of nickel price in the domestic market include the following aspects.

Firstly, mature mental preparation. In 2009,Indonesia Parliament approved the new“Mineral and Coal Mining Law”,i.e.“The 4th Law”, by 2014 it has been implemented for many years. During this period, China’s nickel industry and related professional organizations have obtained adequate time to study this law, their mental preparation is sufficient and mature. Meanwhile, related departments of the state government actively guided nickel manufacturers to implement“walk-out” strategy, offered guidance in policy route, and gave information assistance on related enterprise policies and laws.

Secondly, actively preparing reserve.According to market monitoring organizations,in 2013, China’s import of laterite nickel ore may top 70 million tonnes, in December the nickel ore apparent consumption of China’s ferronickel manufacturers was about 4.60 million tonnes. Based on this figure, at present port inventory can supply production and use for 6 months. It is worth noting that at the end of 2013, domestic ferronickel industry’s rate of opening capacity is inadequate, in which Liaoning was 60%, Hebei was 44%, Jiangsu was 60%,Henan was 50%,Inner Mongolia was 49%, Shandong was 41%. In 2013, suffering from the impact of surplus in production capacity, sluggish prices and environmental protection governance, China’s ferronickel industry’s whole year rate of opening capacity was relatively low. It is expected that in 2014,such condition will hardly undergo any significant changes. Therefore, at present China’s nickel industry laterite nickel ore reserve is sufficient, there is no dispute that it can meet the production needs in the first half of 2014.

Thirdly, import diversification. In recent years,domestic nickel enterprises actively expanded import channels to address the possible impact brought by the new law unveiled by Indonesia.At present, the number of import regions has increased to 27, which broadened the path to effectively diversify risks.

Fourthly, the growth of domestic stainless steel consumption is limited. According to domestic stainless steel and crude steel production statistical data of the first 3 quarters in 2013 published by the Stainless Steel Council of China Special Steel Enterprises Association,the output of stainless steel and crude steel is 13.664 million tonnes, increased by 2.257 million tonnes compared with the same period in the last year, up by 19.79%; the apparent consumption of stainless steel is 10.645 million tonnes, increased by 1.501 million tonnes compared with the same period last year, up by 16.42%. According to incomplete statistics, at the end of 2013, China’s stainless steel production capacity has reached about 28 million tonnes. According to estimate by related sides, based on general production capacity utilization rate of 65% currently in the stainless steel industry, in 2013 the output of stainless steel and crude steel is estimated to be 18.20 million tonnes; based on 75% which is the leading standard in the industry, the output is expected to reach 21 million tonnes.In 2013,China’s apparent consumption of stainless steel is around 15 million tonnes at most; there is obvious surplus of production capacity.

Fifthly, the global oversupply pattern remains unchanged. According to forecast by the International Nickel Study Group, in 2013 on the global market nickel oversupply volume might reach 93,800 tonnes. Oversupply results in continual low level of nickel price.

According to this person,in the face of changes in Indonesia’s export policy for laterite nickel ore resource which accounts for around 50%of total export, the domestic nickel industry responded calmly.

Firstly, adhere to “walk-out” strategy, make investment and set up factory in countries with resources, and process laterite nickel ore locally. According to statistics, there are already a number of enterprises with intention to set up factory in Indonesia.In October 2013,the National Development and Reform Commission approved the 300,000 t/a ferronickel project related to Indonesia Sulawesi Mining Investment Co., Ltd by Shanghai Decent Investment (Group) Co., Ltd and Fujian Dingxin Industries Co., Ltd. This project has a total investment of close to 640 million USD, the site is located at Morowali County, Sulawesi Province, Indonesia. This area’s annual production of laterite nickel ore tops 6 million tones, and is one of the areas in Indonesia with relatively huge reserve and output of laterite nickel ore,which will provide sufficient raw material guarantee for the ferronickel smelting after project completion.In 2012, a private-owned ferronickel manufacturer from Liaoning already constructed 60,000 t/a nickel smelting project industrial park in Indonesia.

Secondly, promote transformation and upgrading of ferronickel industry. In its essence, Indonesia laterite nickel ore crude ore export“new policy” is a “reversal pressure mechanism of the international resource market ” . It has become the consensus of China’s nickel industry to promote transformation and upgrading of the ferronickel industry by taking full advantage of the impact of such “reversal pressure mechanism”. This includes three aspects.

Actively dissolve surplus of production capacity. In 2012, China has developed 6.30 million tonnes of total ferronickel production capacity, in 2013 it newly added 2.92 million tonnes of production capacity, the total production capacity has reached 9.22 million tonnes.According to the calculation of relevant experts based on ferronickel demand of about 6.5164 million tonnes in 2013, the surplus production capacity is over 2.70 million tonnes.

Ensure energy saving and emission reduction by centering on scientific progress. According to this industry insider, vigorously promote the application of Rotary Kiln - Electric Furnace(RKEF) process technology. This process technology began in the 1950 ’ s, it was developed by Elkem Company at Doniambo Factory in New Caledonia, featuring good product quality, high production efficiency,energy saving and environmental protection advantages, it has become mainstream technology for manufacturing ferronickel in the world. In 2012, the production capacity in China’s ferronickel industry that adopted RKEF process accounts for 43.7% of total production capacity, it is expected in 2013 the percentage of RKEF process would reach 65%.The large scale and automation features of RKEF process will provide technological support for the ferronickel industry to solve high energy consumption and high pollution problem.

Improve industry concentration degree. After many years of development, China ’ s ferronickel industry has developed three dominant production zones of Inner Mongolia,Jiangsu and Shandong. Wherein, in 2013 Inner Mongolia’s total production capacity reached 2.03 million tonnes, Jiangsu reached 1.69 million tonnes, Shandong reached 1.47 million tonnes,all of them ranking top nationwide.

However, the main body of China ’ s ferronickel industry is private enterprises,whose production capacity and size are generally small, the industry is scattered in distribution, it is imperative to develop“leading” or “pioneering” enterprises,guide ferronickel industry to achieve healthy and scientific development, improving industry concentration degree is a “threshold” that must be crossed.