On 30th May 2024, LME has approved the listing of the first ever Indonesian brand for refined nickel.
This is an impressive accomplishment, especially considering that just five years ago, Indonesia's nickel production stood at a modest 600,000 metric tons, with most of it being exported as unprocessed ore to China for stainless steel production. However, in 2023, Indonesia's nickel mining output surged to 2.03 million tons of contained metal, representing over half of the world's total production. This significant increase in production has transformed Indonesia into a major player in the global nickel market.
Indonesia has also shifted its export strategy, exporting a variety of nickel products, including refined metal meeting the purity standards required for LME delivery. This shift reflects Indonesia's policy decision to compel miners to undertake downstream processing, a move initiated in 2020, with the ban on ore exports.
For Indonesia, this development validates its policy approach and demonstrates the success of its downstream-focused strategy.
Meanwhile, for the LME, Indonesia's increased nickel production and expanded export offerings come as a boon, injecting much-needed liquidity into the nickel contract market. This liquidity infusion is particularly crucial as the LME works to rebuild its nickel contract following the crisis of 2022.
For everyone else, though, the conversion of Indonesian production power to market power may be more problematic.
Rising Giant
Indonesia's restriction on exporting unprocessed ore faced opposition from other nations, resulting in the European Union winning a case against Indonesia at the World Trade Organization in 2022.
Despite its controversial nature, the policy has proven successful, not only in increasing nickel production but also in diversifying the range of nickel products. Chinese nickel producers, in particular, have adapted to Indonesia's lower-grade nickel resources by developing methods to convert them into forms suitable for electric vehicle batteries. The ban on exports remains in effect.
The new "DX-zwdx" brand guarantees a minimum purity of 99.8% nickel, showcasing the successful evolution of production techniques. PT CNGR Ding Xing New Energy, a collaboration between the Chinese battery materials conglomerate CNGR Advanced Material Co. and a local Indonesian company, has the capacity to manufacture 50,000 tons of this high-quality metal annually.
Changing Export Flows
Indonesia's role in the global nickel supply chain is undergoing a significant transformation, evident in its trade relationship with China, its primary nickel buyer. Following Indonesia's ban on ore exports in 2020, China's imports of Indonesian ore ceased, but to develop its domestic nickel refining industry, Chinese producers of nickel pig iron (NPI) began constructing processing facilities directly in Indonesia.
Chinese companies have developed new processing methods to produce battery-grade nickel sulphate, resulting in an increase in various nickel products traded between the two countries.
Before 2022, China did not import nickel matte from Indonesia due to its unavailability. However, imports reached 300,500 tons in 2023. Additionally, imports of intermediate products like mixed hydroxide precipitate surged from 336,000 tons in 2020 to 819,000 tons in 2023. Indonesia has become China's second-largest supplier of refined nickel after Russia in 2023.
Conclusion
The emergence of a joint Sino-Indonesian production center for high-purity Class I nickel is timely for the London Metal Exchange (LME). Recent sanctions prohibit the LME from accepting deliveries of metal produced by Russia's Norilsk Nickel after April 12. Norilsk, historically a significant liquidity provider in the Class I nickel market with an annual production exceeding 200,000 tons, accounted for a third of LME nickel stocks by the end of April. However, the presence of Chinese nickel in the LME system has surged from none in August 2023 to 12,096 tons. This increase is partly due to deliveries of new Chinese brands, contributing to a steady rise in LME inventory.
The geographical composition of LME stocks is shifting towards the East, reflecting the eastward drift of the Class I market's delivery capacity. This trend empowers Chinese companies, which are expanding refined metal capacity in both China and Indonesia, with significant trading potential.
Indonesia's ongoing nickel production surge, evidenced by a 19% year-on-year increase in mined output in the first quarter of 2024, suggests sustained growth. This indicates that there is more Indonesian nickel yet to be realized, with a portion potentially finding its way to the LME.
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