BNP Paribas: Nickel Market May Be Underpricing Supply Risks From Indonesian Policy

The nickel market may be underpricing the risk of supply losses due to policy changes in Indonesia, says BNP Paribas. “At least until more is known about the outcome, nickel arguably deserves to trade at USD 19,000/t or more,” says senior metals strategist Stephen Briggs. The metal was at $18,322 as of 10:45 a.m. EDT. “We retain our forecast average for 2012 of USD 19,500/t.” He says “it is no longer a foregone conclusion” that nickel is heading into a sustained structural surplus, although this is “still on balance what we believe.” Developments in Indonesia pose risks for downstream producers in Asia, especially China, he explains. A stream of official and semi-official announcements in Indonesia seem to suggest that a ban on exports of unprocessed metal ores will be moved from 2014 to as early as May or that largest export taxes will be imposed, BNP explains. “The one clear-cut result so far has been mass confusion,” Briggs says. Most of China’s nickel-ore imports come from Indonesia. “It is unlikely that China could fully replace its imports from Indonesia, while building sufficient NPI (nickel pig iron) capacity in Indonesia would be difficult to achieve even by 2014,” Briggs says. Meanwhile, he cites Brook Hunt data showing over 10% of the industry is cash negative based on recent LME prices. “We would expect a prolonged period of prices below USD 18,000/t to trigger more extensive cutbacks than seen so far in 2012.”