The monthly stainless steel index (MMI) fell 8.87% from June to July. Nickel prices followed the base metal higher after bottoming out in mid-July. By early August, however, the rally had subsided and prices began to fall again.
Both last month’s gains and this month’s losses were very narrow. For this reason, prices are consolidating in the current range without a clear direction for the next month.
Indonesia continues to seek to increase the value of its nickel reserves. It is hoped that this will help increase stainless steel and battery production capacity through the imposition of export duties on raw materials. Back in 2020, Indonesia completely banned the export of nickel ore. The goal is to get their mining industry to invest in processing capacity.
The move forced China to replace imported ore with nickel pig iron and ferronickel for its stainless steel plants. Indonesia is now planning to impose export duties on both products. This should provide funding for additional investment in the steel supply chain. Indonesia alone will account for about half of global nickel production from 2021.
The first ban on the export of nickel ore was introduced in January 2014. Since the ban, nickel prices have risen more than 39% in the first five months of the year. Eventually, market dynamics pushed prices down again. Prices have risen sharply despite weaker economic conditions in parts of the world, including those in the European Union. For Indonesia, the ban had the desired effect, as many Indonesian and Chinese companies soon announced plans to build nuclear facilities in the archipelago. Outside Indonesia, the ban has forced countries such as China, Australia and Japan to look for other sources of the metal. It didn’t take long for the company to get direct ore shipments (DSO) from places like the Philippines and the Solomon Islands.
Indonesia significantly relaxed the ban in early 2017. This is due to several factors. One of them is the 2016 budget deficit. Another reason is related to the success of the ban, which stimulated the development of nine other nickel plants (compared to two). As a result, in the first half of 2017 alone, this led to a drop in nickel prices by almost 19%.
Having previously expressed its intention to reintroduce the export ban in 2022, Indonesia has instead accelerated the recovery to January 2020. The decision aims to support the rapidly growing domestic processing industry during this period. The move also saw China ramp up its NPI and stainless steel projects in Indonesia as it severely restricted ore imports. As a result, imports of NFCs to China from Indonesia also increased sharply. However, the resumption of the ban did not have the same impact on price trends. Perhaps this is due to the outbreak of the epidemic. Instead, prices remained in a general downtrend, not bottoming until the end of March of that year.
The recently announced potential export tax is related to the increase in NFC export flows. This is facilitated by the predicted increase in the number of domestic enterprises for the processing of NFU and ferronickel. In fact, current estimates predict an increase from 16 properties to 29 in just five years. However, low value products and limited NPI exports will encourage foreign investment in Indonesia as the countries move into battery and stainless steel production. It will also force importers like China to look for alternative sources of supply.
However, the announcement has yet to trigger a noticeable price increase. Instead, nickel prices have been falling since the last rally stalled in early August. The tax could start as early as the third quarter of 2022, said Septian Hario Seto, Deputy Coordinating Minister for Maritime and Investment Affairs. However, an official date has not yet been announced. By then, this announcement alone could trigger a surge in Indonesian NFC exports as countries prepare to pass the tax. Of course, any real nickel price reaction is likely to come after the due date for the collection.
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On July 26, the European Commission launched a new investigation against the bypass. These are hot rolled stainless steel sheets and coils imported from Turkey but originating in Indonesia. The European Steel Association EUROFER has launched an investigation into allegations that imports from Turkey violate anti-dumping measures imposed on Indonesia. Indonesia remains home to several Chinese stainless steel producers. The case is currently expected to be closed within the next nine months. At the same time, all SHRs imported from Turkey will be registered in accordance with EU regulations effective immediately.
To date, President Biden has largely continued the protectionist approach to China followed by his predecessors. While the conclusions and subsequent reaction to their findings remain uncertain, Europe’s actions may inspire the United States to follow suit. After all, anti-dumping has always been politically preferable. In addition, the investigation could lead to the redirection of materials that were once destined for Europe to the US market. If this happens, it could encourage US steel mills to lobby for political action to protect domestic interests.
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