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Government policy dents nickel supply by Asian producers

TOKYO -- The supply of nickel, a metal used to make stainless steel, is being greatly affected by government policy in Indonesia and the Philippines, two major producing nations.

Indonesia, which used to be the biggest nickel ore producer in Asia, has imposed a ban on exports of unprocessed ore in order to nurture domestic smelters. The Philippines has partially suspended mining operations due to environmental concerns. As a result, the world is likely to experience the first supply shortage of nickel in six years in 2016, and it is expected to continue into 2017.

The Indonesian government introduced the export ban in January 2014 to encourage construction of smelting plants in the country and add value to its mining industry.

The administration of President Joko Widodo, established in October 2014, has kept the policy. Though there are calls within his administration for relaxing the total ban, Indonesia appears unlikely to resume full exports.

A leading nickel smelter in Japan did not expect the ban to last this long, an executive admitted. 

The Indonesian decision enabled the Philippines to capture the world's largest share of nickel supply in 2015, up from third place in 2010. Indonesia fell to sixth place from second.

Adjusting the supply chain

While Japan and China combined account for 60% of the world's nickel consumption on a pure nickel basis, the landscape of procurement in Asia has greatly changed.

China, which has a consumption share of 50%, imported from Indonesia and the Philippines on a 50-50 basis in 2010 but raised the ratio of imports from the Philippines to 97% in 2015.

Nickel mined in Indonesia accounted for more than 50% of Japan's total imports in 2010 and dropped to zero in 2015. In contrast, the ratio of imports from the Philippines rose to 60% from 29% and that from New Caledonia to 40% from 18%.

Japanese nickel users have scrambled to change supply sources.

Nippon Yakin Kogyo has concluded "a long-term stable supply contract with New Caledonia," said Masato Noda, an executive officer at the company. The leading manufacturer of stainless steel, which is widely used in automobiles and houses for its corrosion resistance, imported nickel from Indonesia and New Caledonia at a ratio of 70% to 30% before Jakarta's imposition of the export ban, but now relies 100% on New Caledonia.

Sumitomo Metal Mining "used to import nickel from Indonesia and New Caledonia roughly on a 50-50 basis, but now from the latter almost exclusively," a company official said. Sumitomo Metal Mining is a top smelter of nonferrous metals and has a smelting plant in the Philippines. 

Pacific Metals has come to depend on the Philippines for 80% of nickel imports. In the Philippines, however, operations at certain nickel mines have been suspended by the administration of President Rodrigo Duterte, formed in June, for environmental reasons.

Hailing from the southern part of the country, which has many mines and also experience with environmental problems due to the reckless exploitation of them, Duterte is greatly concerned about environmental destruction. The suspension of operations followed the inspection of mines ordered by Environment and Natural Resources Secretary Gina Lopez, who is seen as an environmental hawk.

Dante Bravo, president of leading Philippine nickel producer Global Ferronickel Holdings, told a U.S. media organization that exports of nickel ore from the Philippines may decrease by up to 30% in 2016 from the previous year.

Supply pinch

The first supply shortage of nickel in six years is becoming a real possibility.

The International Nickel Study Group, consisting of nickel producing, using and trading countries, forecast in late October that production will total 1,934,000 tons in 2016, 3.3% less than demand. A shortage of around 3% is also expected in 2017, it added.

International prices of nickel currently top $10,000 per ton, up around 20% from early in 2016.

To secure a stable supply of nickel, Chinese companies have begun smelting the metal in Indonesia in compliance with the Indonesian government's policy.

Leading stainless steel producer Tsingshan Holding Group began exporting nickel pig iron in 2015 from a smelting plant it built on the island of Sulawesi. Macrolink Nickel Development, a unit of China's Macrolink Group, is building a ferronickel smelter on the island jointly with an Indonesian nickel ore miner.

While many projects by Chinese companies have yet to start due to nickel price falls, they are expected to get underway in light of recent price increases. 

The policies of Indonesia and the Philippines are upending nickel supplies in Asia, while New Caledonia's export capacity is limited, according to Japan Oil, Gas and Metals National Corp. Under the circumstances, companies need to take bold countermeasures such as building smelters in producing nations. 

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