Nickel Is Best Bet for Barclays as Indonesian Export Ban Looms

Loading nickel ore in Pomalaa, Indonesia. Image (c) PT. Mari Inti Karsa

Dec. 10 (Bloomberg) — Nickel, the worst performing base metal this year, offers investors the best opportunity for advances in early 2014 as Indonesia is poised to halt the export of mineral ores, according to Barclays Plc.

The prohibition in the largest mined producer, set to take effect after Jan. 12, may curb supplies for makers of nickel pig iron in China, analysts including Kevin Norrish wrote in a report. Even if the ban isn’t implemented as planned, prices are so low other producers will cut output, they wrote.

Southeast Asia’s largest economy, which also mines copper and bauxite, wants to increase the value of commodity shipments by promoting local processing. The government will proceed with the ban after it received backing from parliament, Energy and Mineral Resources Minister Jero Wacik said last week, spurring a rally in London. The proposed curb may be a turning point for the global nickel market by helping to reduce oversupply, according to Vale SA, the second-biggest producer.

“The best opportunity on the long side of base metals in early 2014 is in nickel,” Norrish wrote in the report, dated yesterday. Long bets refer to wagers on gains. “Upside price risk is provided by the export ban on nickel-bearing iron ore due to come into effect in Indonesia in early 2014.”

Nickel is also a highly hazardous cargo to ship, read more here

Three-month futures gained as much as 0.5 percent to $14,020 a metric ton on the London Metal Exchange, the highest price since Nov. 8, and traded at $13,978 at 5:08 p.m. in Singapore. An increase today would be the fifth daily advance, the best run since the period to Aug. 14.

Worst Performer

Nickel may average $14,750 in the first three months of next year, $15,000 in the second and third quarters, and $15,250 in the final period, according to Barclays. The metal is the worst performer on the LME this year, retreating 18 percent.

The proposed ban is extremely bullish for nickel as exports from Indonesia are a major part of global supply, Macquarie Group Ltd. said Dec. 6. BNP Paribas SA advised clients on Nov. 26 to buy call options on nickel exercisable at $14,500 as the ban draws closer. Citigroup Inc. last month boosted its 2014 forecast to $17,000 from $16,375, citing the rule change.

There’s still a possibility that the full ore ban may not go into effect next month. Indonesia is seeking a solution on mineral exports for 2014, and the government may set purity limits that will allow some minerals to be shipped, Bachrul Chairi, director general of foreign trade at the Trade Ministry, told reporters in Jakarta today.

‘How Strictly’

“Although there remains some uncertainty over how strictly this ban will be implemented, even if it is not, nickel prices are so low that other producers will almost certainly have to cut instead,” Norrish wrote. “ At current price levels, downside is limited since almost 30 percent of global producers are unable to cover cash costs.”

Indonesia produced 460,000 tons of nickel from mines in 2012, according to the International Nickel Study Group. The global market will be in surplus by 70,000 tons this year, narrowing to 15,000 tons in 2014, according to BNP. Stockpiles tracked by the LME touched a record 253,068 tons on Dec. 6.

“We are seeking solutions: if not then exports of ore will be halted,” said Chairi at the Trade Ministry. “The definition of purity limits, it may be the solution.”

– Jake Lloyd-Smith, Copyright 2013 Bloomberg.