• The launch of Indonesian Nickel Indices could benefit Bindura's nickel concentrate product.
  • Improved pricing, transparency and new investments could revitalize Bindura's operations.
  • The new indices provide a stable benchmark for nickel prices, reducing volatility.

Indonesia, the world's largest nickel producer, has put on hold its plans to impose export levies on nickel products in a bid to create a price index that will help ease the volatility tied to the London Metal Exchange (LME) benchmark. The government is working to launch a nickel price index by the end of 2023 and wants it in place before proceeding with the export levy. The new indices, based on surveys of producers, exporters, importers, and end-users in the country, will provide more transparency and better price discovery for global nickel markets.

The launch of the Indonesian Nickel Indices could be a game-changer for nickel miners worldwide, including Bindura Nickel Corporation in Zimbabwe, which has been facing several challenges in recent years, including liquidity troubles, aging infrastructure, and global declines in metal prices. The new indices could give better insight into price trends and improve their bargaining power with offtakers, potentially revitalizing Bindura and Zimbabwe's nickel sector as a whole.

Indonesia's dominant role in the global nickel supply matrix means that any policy decisions it makes around nickel production affects the global price of the metal. The country banned nickel ore exports at the start of 2020, which supported its domestic smelting industry and led to a price recovery similar to the 2014-15 ban on unprocessed ore. Bindura, on the other hand, is a price taker, and any maneuvers that potentially tighten demand increase its revenue and profitability given better realized prices.

The planned export levy was initially proposed as a way to encourage domestic processing of nickel ore. The levy was set to be introduced in August 2021, with rates ranging from 2% to 10% depending on the type of product and the nickel content. However, the government has now decided to delay the implementation of the levy until the price index is established.

According to analysts at Equity Axis, the improved prices and new investments resulting from the Indonesian Nickel Indices could help increase production at Bindura's Trojan mine and potentially enable expansion into other deposits. This could position Bindura and Zimbabwe's nickel sector to meet the increasing global demand for nickel in the production of stainless steel and lithium-ion batteries.

The outlook for nickel as a mineral is positive, given its increasing demand for use in electric vehicle batteries and the transition towards renewable energy. The demand for nickel for use in electric vehicle batteries alone is expected to increase by 18 times between 2020 and 2030, according to Wood Mackenzie.

The use of nickel in stainless steel production is also expected to grow, particularly in the construction and infrastructure sectors, as urbanization and infrastructure development continue to increase around the world.

The price of nickel has been volatile in recent years, with the LME benchmark experiencing significant surges in March 2022, leading to the suspension of nickel trading for more than a week. The launch of the Indonesian Nickel Indices is expected to provide a more stable benchmark for nickel prices, reducing volatility and improving price discovery for global nickel markets.

However, it is worth noting that there are other nickel producers around the world, such as Russia, Canada, and Australia, that could step in to fill any supply gaps left by Indonesia. It is also possible that other countries could increase their nickel production in response to higher prices, which could ultimately lead to a more competitive market.

Reuters reported that an exclusive deal signed by UK-based Global Commodities Holdings Limited (GCHL) could change the landscape for referencing nickel prices. The launch of the nickel price index by the end of 2023 is eagerly anticipated, and its impact on the industry will be closely monitored.

In conclusion, the decision by Indonesia, the world's top nickel producer, to hold off on implementing a tax on nickel product exports until a price index is established, is likely to have an impact on the nickel market in 2023. The creation of a price index is aimed at reducing volatility associated with the London Metal Exchange (LME) benchmark, which could provide greater stability for nickel prices. However, the delay in implementing the export levy could also lead to a temporary increase in nickel supply as producers take advantage of the delay to boost production and exports. Overall, the outlook for nickel demand and supply in 2023 will depend on a range of factors, including global economic conditions, technological developments, and government policies in key nickel-producing countries like Indonesia.

Commodities Perspective Corner is a weekly publication focusing on general commodities from Agriculture, Energy to Metals. The column seeks to highlight global developments narrowing down their impact on the local economy and vice versa.
-Equity Axis News