Indonesia forecasts that nine nickel-processing plants may be completed this year after the prohibition of raw ore exports in January, spurring a rally in refined prices to the highest level since 2012.
The plants comprise two ferronickel and seven nickel-pig-iron smelters, according to data from the Indonesian Energy and Mineral Resources Ministry. One chemical-grade alumina plant is also scheduled to be completed this year, the data showed.
Nickel has jumped 48 percent this year, the best performer on the London Metal Exchange (LME) as Indonesia banned ore shipments in January and operations at Vale SA’s plant in New Caledonia were halted last week after a spill of a solution. Concern that tougher sanctions will be imposed against Russia added to the pressure.
The contract for delivery in three months on the LME rose as much as 4.9 percent to US$20,870 a tonne, the highest since February 2012, and was at US$20,580 at 4:17pm in Tokyo yesterday. The price rose 9 percent last week, the most since February 2010.
“Greenfield smelters are horribly expensive and drag down the profitability of even the best ore-mining operations,” said Xavier Jean, a credit analyst at Standard & Poor’s in Singapore.
The prospects for completions this year are unrealistic, Jean said in an interview.
As many as 63 smelters may be built by 2017, including 40 nickel plants, 10 iron ore smelters and four copper-cathode smelters, according to the ministry’s data, which was presented at a seminar in Jakarta on April 30.
Construction work at 30 companies may be 80 to 100 percent complete this year, mostly for nickel and some iron projects, R. Sukhyar, director-general of coal and minerals at the Indonesian Energy and Mineral Resources Ministry, said on Wednesday last week.
State utility PT Perusahaan Listrik Negara (PLN) received requests from 25 companies to supply new mineral-processing plants with power as of last month. While investors want electricity at the mines, for example nickel in Halmahera island, there is not enough capacity there, PLN president director Nur Pamudji said.
Indonesia is an archipelago of more than 17,000 islands, with many mineral deposits including nickel and bauxite located away from the most-populated island of Java. Smelters are often sited in remote areas where power stations and infrastructure are lacking.
Some companies have announced plans for smelters. Sulawesi Mining Investment, a joint venture between Chinese and Indonesian companies, said in March that it plans to start output at a 300,000-tonne ferronickel smelter in Central Sulawesi next year. PT Aneka Tambang and PT Freeport Indonesia, the local unit of Freeport-McMoRan Copper and Gold Inc, are conducting a feasibility study for a copper smelter.
While refined nickel may rally on the ban this year, Chinese investment to expand nickel-pig-iron capacity in Indonesia over the next two years will eventually hurt prices, Goldman Sachs Group Inc said.
The global nickel market will swing to a deficit of 132,200 tonne next year from a surplus of 13,800 tonne this year, Citigroup Inc said in a report on Friday last week. Prices may rise to more than US$30,000 a tonne next year, according to Citigroup.
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