London 25/08/2016 - Indonesian ferronickel mills appear to be taking advantage of Chinese nickel pig iron (NPI) producers' limited ability to produce at capacity, import data suggests.
While NPI production in China continues to drop while mills face an uphill battle to source raw material, ferronickel exports from Indonesia into China are surging.
Imports of ferronickel from Indonesia to China jumped by a factor of 5.5 to 74,493 tonnes in July, taking imports to 390,706 tonnes in January-July - a more than four-fold year-on-year rise.
Likewise, China's ferronickel imports rose 56 percent year-on-year to 92,240 tonnes in July, taking year-to-date imports to 557,208 tonnes, up 46.8 percent on the same 2015 period.
Simultaneously, Chinese NPI production is falling. ICBC Standard Bank estimated in May - well before the recent shake-up in Filipino mining - that domestic NPI output would drop nine percent to around 350,000 tonnes this year, with mills struggling both in the lower-price environment and the increased difficulty in sourcing nickel ore after Indonesia implemented its mineral export ban in 2014.
Against the backdrop, spot premiums are soaring for large tonnages of ferronickel. The drawdown in stockpiled material in China prior to the Indonesian export ban combined with limited availability of scrap products and consistent disruptions to production mean that mid-to-high-grade ferronickel can fetch premiums of above $200 in China; this is also the case across much of Southeast Asia.
Indonesia has exported nearly 400,000 tonnes of the material so far this year, suggesting that one of the many impacts of the mineral ban - investment in domestic processing plants - is starting to show up. Observers will be keen to see whether the trend continues, particularly if Chinese production of lower-grade NPI tapers off.
China's NPI producers, meanwhile, potentially face a growing struggle to source raw materials due to the crackdown in the Philippines - the provider of more than 90 percent of China's raw materials in the first half of the year. While the Philippines is unable to provide the same tonnages as neighbour Indonesia did prior to its ban, much of the Filipino output had offset the shortfall.
The Philippines produced around 450,000 tonnes of recoverable nickel ore last year, Macquarie recently estimated, around 23 percent of global output. This figure includes both higher-grade 1.5 percent nickel ores and, more recently, the medium-grade 1.35-1.4 percent ores that Chinese producers have increasingly accepted to keep up production.
Prior to the export ban in Indonesia, its domestic output was around 1.95 million tonnes, Metal Bulletin said.
China's nickel ore and concentrate imports fell 34.3 percent year-on-year and 6.7 percent month-on-month to 3.29 million tonnes in July, according to latest data from Chinese customs. Of the July imports, 3.16 million tonnes were from the Philippines, which was a 35.9-percent decline from the same month of last year.
According to ISO standards, ferronickel must contain a minimum of 15 percent nickel content. NPI traditionally ranges anywhere from six percent up to 15 percent.
NPI was invented in China as a cheap alternative to the more expensive pure nickel cathodes in the production of stainless steel. NPI and ferronickel is mainly used in 200 series stainless steel, a low-nickel, non-magnetic and cheaper alternative to the more widely used 300 series that requires higher percentages of nickel.
200 series steel has nickel content of 1-4 percent nickel compared with closer to eight percent in 300 series although the latter remains the most widely used in the domestic Chinese market and globally.
(Additional reporting by Vivian Teo, editing by Mark Shaw)