Vale Indonesia Struggles to Find Nickel Smelter Partners After Rule Change: CEO

 

Nickel producer Vale Indonesia said Indonesia’s recent policy shift to allow ore exports is helping keep global prices of the metal low, and complicating efforts to establish partnerships for new smelter investments.

Nickel miners globally have been grappling with persistent weakness in the market, partly the result of moves by Indonesia and the Philippines to pull back on restrictions targeting their mining sectors.

A resumption of Indonesian nickel ore exports in May this year has been a boon for China’s nickel pig iron (NPI) producers that depend on such ore, but has meant trouble for the rest of the world’s nickel producers.

For Vale Indonesia, that has meant difficulties in establishing or maintaining partnerships for several ferronickel smelter projects on the island of Sulawesi.

“Some have told us verbally and some have put it in writing,” Vale Indonesia CEO Nico Kanter told Reuters in an interview, speaking of partners who have said they are pulling the plug or delaying decisions amid the pricing and regulatory uncertainties.

Japanese miner Sumitomo Metal Mining is partnering with Vale on a nickel processing plant in Pomalaa in Southeast Sulawesi.

But “they are now more concerned about the calculations of their internal rate of return, because this is a $2 billion project,” Nico said.

Another potential Chinese co-investor has decided to withdraw from a ferronickel smelter project in Bahodopi, Central Sulawesi, he said.

Benchmark nickel prices on the London Metals Exchange have gained about 3.5 percent since Indonesia’s rules changed, and were at $10,815 per metric ton on Wednesday (09/08).

“If there wasn’t a [rule change], prices could have improved more,” said Kanter.

Nickel prices made small gains since the latest rule change, but remain well below levels seen prior to mid-2015. Indonesia has already issued permits for 8.16 million metric tons of nickel ore exports, sparking worries that further permits will follow, Vale Indonesia corporate secretary Ratih Amri said.

“This is not in line with the government’s vision of creating added value in the nation,” Ratih said.

Indonesia’s ban on unprocessed ore exports in 2014 had paid off, Ratih said, attracting at least $6 billion in nickel smelter investments.

As of June, however, around half of Indonesia’s newly constructed nickel smelters were shuttered as a result of the market’s shaky prices.

Indonesia’s mining ministry has denied that its ore export policy shift is to blame for the closures.

Bambang Gatot, the director general of coal and minerals at the Ministry of Energy and Mineral Resources,  said the smelters were closed because of “uneconomical technologies”.

Vale Indonesia’s shares have recovered in recent weeks and were at Rp 2,600 rupiah ($0.1951) on Wednesday, still around 14 percent less than where they were before the policy shift.

Companies that secure nickel ore export quota allocations are Fajar Bhakti Lintas Nusantara with 1.06 million wet metric tons, Aneka Tambang with 2.72 million wet metric tons, Ceria Nugraha Indotama with 2.3 million wet metric tons, Trimegah Bangun Persada with 1.56 million wet metric tons and Gane Permai Sentosa with 519,933 wet metric tons.

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