Indonesia Nickel-Ore Ban Sends Sumitomo Looking for Supply

By Jae Hur and Ichiro Suzuki - May 16, 2012
BLOOMBERG
Restrictions on nickel-ore exports by Indonesia may force Japan, the world’s third-largest producer of refined metal, to source raw material from other suppliers or reduce output, Sumitomo Metal Mining Co. said.

“If the ban continues, we’ll need more ore from the Philippines and New Caledonia,” said Toru Higo, general manager of nickel sales and raw materials at Japan’s top producer. Indonesia banned exports of 14 raw minerals effective May 6, with an exception for miners that plan to build local processing facilities, Energy and Mineral Resources Minister Jero Wacik said. The miners will be taxed 20 percent on ore shipments.

Nickel, used to strengthen stainless steel, has fallen 10 percent this year, extending last year’s 24 percent loss on slowing demand in China and concern over Europe’s debt crisis. Indonesia’s 20 percent tax on ore exports will boost prices in the mid-term, while large stockpiles in China will limit short- term impacts, China International Capital Corp. said on May 8.

“The ban may increase costs for securing raw materials,” said Syusaku Nishikawa, a Daiwa Securities Capital Markets analyst. This may also force producers in East Asia to cut output, tightening global supplies, he said.

The restriction applies to copper, lead, nickel, gold, silver, zinc, chromium, bauxite, manganese, molybdenum, platinum, antimony, iron ore and sand iron.

‘Cut Production’

Sumitomo sees “little impact” near term as it has stockpiles and other suppliers, Higo said in an interview yesterday. “If it gets worse, the new rules will force some producers to cut production.”

Nickel for three-month delivery in London fell 1 percent to $16,820 a metric ton at 3:43 p.m. Tokyo time. The metal is the worst performer this year on the London Metal Exchange.

China boosted imports of bauxite and nickel ore to build stockpiles before Indonesia, its largest supplier, curbed shipments, Barclays Capital said April 23. China and Russia were the biggest producers of refined metal in 2010, according to London-based metals consultant CRU.

China’s nickel ore imports jumped 73 percent to 3.67 million tons in March from a year earlier, data from the Beijing-based Customs General Administration showed April 23.

Philippines, New Caledonia

Japan imported 3.65 million tons of ore in 2011, according to finance ministry data. Indonesia supplied 1.95 million tons, or 53 percent, followed by New Caledonia with 27 percent and the Philippines with 19 percent, the data showed.

Sumitomo Metal will produce 41,000 tons of electrolytic nickel and 22,200 tons of ferronickel in the year started April 1, little changed from a year earlier, it said April 2.

Pacific Metals Co., Japan’s top ferronickel producer, spokesman Kosuke Naradate said the company was still trying to collect more information about the ban.

The Indonesia Mining Association estimated in March that the ban will cut nickel-ore and bauxite exports by as much as 75 percent this year.

Indonesia shipped 33 million tons of nickel ore and 40 million tons of bauxite last year, according to Syahrir Abubakar, the group’s executive director.

The tax on miners is unlikely to affect prices in the near term because China has been stockpiling and will find material elsewhere in the coming months, Morgan Stanley said in a report on May 14. China’s nickel pig iron producers source just over half of their ore from Indonesia, the bank said.