The price of imported nickel ore in China could jump more than 50%, following Indonesia's export ban on the product which took effect January 12, Macquarie Commodities Research said in a report Tuesday.
Nickel ore stocks in China are partly held by trading companies, which are likely to immediately mark up ore prices, Macquarie said, adding that CFR China nickel ore prices are currently around $45-50/mt.
"We would not rule out a potential [more than] 50% rise in ore prices ...," it said, adding that the breakeven price to produce nickel pig iron by rotary kiln/electric furnace would increase from $12,000/mt to more than $15,000/mt.
NPI is a form of low-grade ferronickel, which is mainly used in the stainless steel industry.
Chinese buyers had been stocking up on nickel ore prior to the ban, Macquarie said. Stocks of nickel ore in China are currently about 32 million mt (around 350,000 mt of contained nickel), which is equivalent to one year's consumption of Indonesian material, it said.
"There is certainly a physical hedge in place; however, this will be reduced through the course of this year, with all other things being equal," Macquarie added.
Macquarie also predicted that the surplus in the global nickel market would shrink to 35,000 mt this year - assuming NPI output falls slightly to 475,000 mt - from a surplus of 150,000 mt in 2013.
"For 2015, however, the market swings into deficit assuming that NPI production starts to get constrained, with bullish implications for price," it noted.
Indonesia exported 50 million mt of wet nickel ore last year, which equates to 585,000 mt of contained nickel based on an average nickel content of 1.8% and moisture of 35%, according to Macquarie. Approximately 45 million mt went to China, and the rest to Japan, Ukraine and Greece, it said.
The majority of nickel ore exported from Indonesia is used for NPI production in China.
After staying below $14,000/mt for the past fortnight, nickel prices on the London Metal Exchange exceeded that level following the Indonesian ban. The official nickel cash price on the London Metal Exchange finished at $14,280-14,285/mt on January 14.
