September 2, 2019 / 10:21 AM / 14 days ago

Indonesia could plug nickel pig iron gap caused by its ore export ban

* Indonesia’s NPI output could reach 530,000 T by 2020 -analyst

* Indonesia nickel ore export ban to disrupt supply to top NPI producer China

* Indonesia’s NPI capacity may match China’s by 2021 -Wood Mackenzie

By Mai Nguyen

SINGAPORE, Sept 2 (Reuters) - Indonesia may be able to plug an expected shortfall in nickel pig iron (NPI) supplies caused by its nickel ore export ban starting next year by boosting its own capacity to produce the semi-finished metal used to make stainless steel.

China, the world’s biggest nickel user, has traditionally imported nickel ore from Indonesia, the world’s biggest ore producer, to produce NPI to make stainless steel. But that supply chain will be disrupted by the ore export ban set to start on Jan. 1, part of Indonesia’s push to develop a higher-value domestic metal processing industry.

Indonesia accounted for 26% of global nickel ore supplies last year, according to the International Nickel Study Group, but since 2016 has ramped up production of NPI, an intermediate product containing around 10% nickel used by stainless steel mills.

The increase in NPI production has mostly come from Chinese companies operating in Indonesia.

From nearly zero in 2014, Indonesia’s NPI output climbed to 261,000 tonnes a year in 2018, according to data from Australia’s Macquarie Group Ltd.

That could climb to as much as 530,000 tonnes in 2020, according to estimates from Chinese trading firm Grand Flow Resources.

“It is estimated that the annual increase of nickel metal content in NPI will be 130,000 tonnes a year. The high speed expansion will extend from 2020 to 2021,” said Wang Chongfeng, an analyst at Grand Flow Resources.

Energy and minerals consultants Wood Mackenzie forecast that by 2021, Indonesian NPI output will surpass China’s, which is estimated at 570,000 tonnes this year.

“It is possible some, and ultimately all, of the lost NPI production in China could be offset by NPI production increase in Indonesia – but this will take some time,” said analyst Linda Zhang of Wood Mackenzie.

The expected disruption of ore supply and the resulting curtailment of Chinese NPI output has caused nickel prices to surge.

London nickel hit a five-year high and has leaped over 70% this year, while Shanghai nickel hit a record as markets feared the stainless steel industry, which consumes 70% of global nickel output, will lack supplies.

Reporting by Mai Nguyen; Additional reporting by Tom Daly in BEIJING; editing by Christian Schmollinger

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