Indonesian ban on unprocessed ore exports may help Vale
A new commodities report projects a boost in the price of nickel over the next three years — and that will have an impact on mining companies in Sudbury.
The projected price hike is connected to what's happening overseas in Indonesia, where that country recently put a ban on exports of unprocessed ore—an effort to encourage foreign investment in domestic refining activity.
The country produces about 28 per cent of the world's nickel, so its withdrawal from the global market marks a significant drop in supply.
Recent nickel prices have reflected this new reality, as it reached a six-month high this week at $8.11/lb.
"I have revised upward my price forecast for 2015 to $9 a pound,” said Patricia Mohr, a commodities specialist with Scotiabank.
“We started this year at prices just a little above $6, so it does represent quite an improvement."
Miner Vale has operations in Indonesia, but spokesperson Cory McPhee said the company won't be affected by the ban.
"We're a company that actually produces a refined nickel product in Indonesia,” he said.
“We produce a nickel matte. So the restriction on exports actually applies to unprocessed ore, so it doesn't impact our operations there to any great degree."
Instead, McPhee said the effect of the ban on nickel prices could help Vale.
"Any positive impact on the price is good for our investments."
The executive director of the Goodman School of Mines at Laurentian University said the ban could be problematic in other areas, however.
"If there are bans that start popping up all over the place, then companies just won't go to those jurisdictions, if it really negatively affects the bottom line," Bruce Jago said.
Jago added companies will only build smelters in foreign countries if the mines are yielding enough minerals to justify that investment.
“So let's say you find a moderate size mine in a country in Africa and there's not a lot of infrastructure there but there's enough tonnes of the right grade that you can start a decent mine. If the government of that country says 'oh nope, you've got to build a smelter,' well if there's not enough value in the ore that you're mining to justify building a smelter, then you're just going to say, 'no we can't go ahead, economically we can't build a mine and you're going to give up the employment and the taxes that come from us with our nice medium-sized mine."
As for Glencore-Xstrata, a spokesperson said it is not company policy to speculate on nickel prices. Currently the company only has an office in Jakarta, the capital of Indonesia. It has, however, been looking into the potential of opening a mineral processing facility there.
Mohr said there's no sign of the ban being lifted in the near future. A presidential election in Indonesia is expected in July and both major political parties are in favour of the ban — which means it could stay in place for a while.