The Indonesian Nickel Industry – Strategic Market ... impact ... Strategic Market Prospects out to...

The Indonesian NickelIndustry – Strategic MarketProspects out to 2020

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The Indonesian Nickel Industry – Strategic Market Prospects out to 2020

Table of Contents1. Indonesian mining law: Following a long-term plan .........................................5

After 12 January 2014 .............................................................................................................7

Current developments ............................................................................................................10

2. Indonesian nickel industry ................................................................................. 11Refined nickel production .......................................................................................................14

3. Difficulties of investing in Indonesia ................................................................ 19Further considerations ............................................................................................................23

Types of nickel investor in Indonesia .....................................................................................27

4. Indonesian NPI production development ....................................................... 29Blast furnaces ..........................................................................................................................30

Electrical furnaces ..................................................................................................................31

Operating costs ........................................................................................................................32

Payback period in more detail................................................................................................33

5. Nickel Market dynamics out to 2020............................................................... 35

6. Projected projects to 2017 ................................................................................ 39Non-NPI projects ......................................................................................................................40

NPI projects ..............................................................................................................................41

7. Global impact ........................................................................................................ 53Will the nickel recovery happen? ..........................................................................................57

Is this a crisis for the nickel industry? ..................................................................................57

Figure 1: Indonesian GDP (constant $ 2005) ..................................................................................7

Figure 2: Chinese imports of nickel ore in 2013..............................................................................9

Figure 3: Japanese imports of nickel ore in 2013 .........................................................................10

Figure 4: Indonesia: an archipelago full of resources ..................................................................12

Figure 5: Indonesian nickel ore export destinations in 2013 ......................................................13

Figure 6: Volume export of nickel ore from Indonesia (WMT) ......................................................13

Figure 7: Chinese nickel ore import sources in 2013 ...................................................................14

Figure 8: Chinese nickel ore inventories at ports (WMT) ..............................................................14

List of Figures

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List of FiguresFigure 9: Indonesian refined nickel exports ...................................................................................15

Figure 10: FDI in Indonesia, 2010-2014 ($ billion) .......................................................................21

Figure 11: Industrial concentration corridors in Master Plan 2015-2025 .................................24

Figure 12: Focus on power supply available in Indonesia ............................................................25

Figure 13: Infrastructure investment in Maluku/Papua to 2025 ($ billion) ...............................26

Figure 14: Infrastructure investment in Sulawesi to 2025 ($ billion) ..........................................26

Figure 15: Investor type 2015-2020 ...............................................................................................27

Figure 16: Capex intensity of blast furnaces ..................................................................................30

Figure 17: Capex intensity of electrical furnaces............................................................................31

Figure 18: Opex per Ni grade/process ($/lb) .................................................................................32

Figure 19: Payback period ................................................................................................................33

Figure 20: Total estimated NPI production (Tni), including disruption ........................................36

Figure 21: Nickel production in NPI per process ............................................................................36

Figure 22: Indonesian nickel capacity/projection, projected .......................................................37

Figure 23: Indonesian nickel production per product ..................................................................38

Figure 24: NPI production 2011-2020 ............................................................................................54

Figure 25: Global nickel production .................................................................................................54

Figure 26: Nickel production 2014 (left) and 2020 ......................................................................55

Figure 27: Global nickel production vs consumption to 2020 .....................................................55

Figure 28: Nickel global supply/demand balance (tonnes Ni) .....................................................56

Figure 29: Average LME price range 2013-2020 ($/tonne) ........................................................57

Table 1: Concentrate export duties 2014-2016 ..............................................................................8

Table 2: Nickel content per product allowed to be exported from Indonesia ...............................9

Table 3: Estimated Indonesian reserves and resources ..............................................................12

Table 4: Current nickel producers in Indonesia..............................................................................15

Table 5: Indonesia’s investment ratings .........................................................................................20

Table 6: Relative restrictiveness on foreign direct investment, 2014 ........................................20

Table 7: FDI restrictiveness index for mining & quarrying

(including oil extraction) among 58 countries .................................................................21

Table 8: FDI in mining sector in Indonesia ......................................................................................21

Table 9: Tax incentives available to foreign investors ....................................................................22

Table 10: Capital invested in Indonesia and expected to be invested to 2017 (est) .................28

List of Tables

1. Indonesian mining law: Following a long-term plan



1. Indonesian mining law: Following a long-term planmetals before exports are fully banned. This sounds disappointing, considering what we said previously of government plans for Indonesia, but Indonesia wants to develop its industry, not kill it completely; so it is strangling exporters slowly without killing them outright, to force local investment. In exchange, producers must pay export duties (Table 1), which should increase every half-year, and commit to building refining plants.

In fact, the Mining Ministry has softened its policy by giving an export tax discount (7% instead of 25% and above) to companies that have showed progress in project development (minimum 30% achieved), but this gift can be taken back easily if there is no more improvement. Most producers complied with the government’s requests by paying these taxes and showing development plans, but three years will be too little to build these facilities. We could assume that this period will be extended for projects that can show construction progress, but for those that haven’t invested in new plants, permits will be withdrawn.

Table 1: Concentrate export duties 2014-2016

Concentrate2014 2015 2016

H1 H2 H1 H2 H1 H2

Copper 25% 25% 35% 40% 50% 60%Iron (Hematite) 20% 20% 30% 40% 50% 60%Iron (Laterite) 20% 20% 30% 40% 50% 60%Manganese 20% 20% 30% 40% 50% 60%Lead 20% 20% 30% 40% 50% 60%Zinc 20% 20% 30% 40% 50% 60%Ilmenite 20% 20% 30% 40% 50% 60%Titan 20% 20% 30% 40% 50% 60%

The Contract of Works (CoW) will not be spared and can be cancelled. Vale, for example, is committed to building two new plants, in Bahodopi and Pomalaa, and one extension of the Sorowako plant. If Vale does not comply with the development plan, the risk of government taking out the CoW is real. The question is, does Vale need the CoW? Not really. This agreement is convenient to ensure tax and ore supply stability, but Vale will be free to exploit nickel ore through IUPs (mining permits) or to purchase it from different suppliers. On the other hand, Freeport or Newmont cannot yet fully refine their copper production in Indonesia, as Vale can, so their situation is much more delicate if the CoW is cancelled. Moreover, the end of the concentrates export moratorium in December 2016 (after a probable extension of one or two more years) will coincide with the new presidential election in 2019. If he seeks to be re-elected, President Joko Widodo cannot afford to be lenient with foreign investors. Producers that do not comply with the new rules will probably lose their permits, and possibly also lose their concentrate factories, to the profit of a state-owned company.

Category 2 exports, which include nickel and bauxite ore, have been fully banished since 12 January 2014. Why nickel and bauxite? Bauxite is not a significant mineral in Indonesia – exports before the ban were very low in terms of volume, and processing facilities non-existent, so the ban was easy to implement. Nickel is a different story. Some smelters already exist, such as those of Antam or Vale, but the amount of nickel ore exported was enormous, reaching 64 million tonnes in 2013. Moreover, the sources of nickel ore are numerous, whereas for copper there are only two or three different actors. Then, Indonesia nickel ore fed 50-60% of Chinese nickel ore needs, a country that consumes about 45-50% of the global production of nickel. Based on these facts, the leak of nickel ore from Indonesia must be stopped and the potential



2. Indonesian nickel industry

Total nickel production in 2014 was 1,95 million tonnes, Indonesia is only 4,91% of the global total, while the country produced 32% of the world’s nickel ore in 2013.

We can understand why Indonesia would like to keep the added value in the country instead of exporting it!

Figure 4: Indonesia: an archipelago full of resources

The Indonesian Republic is literally full of resources: coal, gold, copper, oil and gas, lead, and of course nickel – there is almost no metal you cannot find in the archipelago. As you can observe on the map above, the main resources of nickel are concentrated in Sulawesi, especially South-East and Central Sulawesi, and Halmahera. We could say that 95% of the nickel produced in Indonesia come from these two islands.

Table 3: Estimated Indonesian reserves and resources

Reserves ResourcesNickel ore deposit 1,168 billion tonnes 3,565 billion tonnesMetal estimated in the ore 22 million tonnes of Nickel 52,2 million tonnes of nickel

Source: Ministry of Mining

Moreover, Indonesian nickel resources are not only huge, they are also high-quality. The archipelago concentrates more than 40% of the global total of high-grade lateritic nickel ore (1,8% Ni content and above), which is strategically very important. Most pyro-metallurgical processing must use this high-grade nickel ore to be profitable, and the world’s second-biggest resource is located in New Caledonia.

IN THIS CHAPTER

Refined nickel production 14

Indonesia is a very interesting case for investors. The archipelago is a not a big producer of refined nickel in world terms – no more than 98 kilotonnes in 2014 – yet it has by far the greatest potential in the coming years regarding refined nickel production growth and minable reserves.

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2. Indonesian nickel industry

80% of production in the graphic above is nickel matte from PT Vale Indonesia, which is mostly exported to Japan’s Sumitomo, to be refined into pure nickel metal for high-tech applications. The remaining production, comprising ferronickel and NPI, feeds the Asian stainless steel industry (in China, Taiwan, India, Pakistan and so on).

Table 4: Current nickel producers in Indonesia

PT ANTAM PERSERo

SHAREHoLdERS 65% Republic of Indonesia35% Public

LoCATIoN Pomalaa, SulawesiTECHNoLoGy EAF (electrical arc furnace)PRoCESS 3 lines EAFPowERPLANT 102 MW dieselPRoduCTIoN CAPACITy (NI) 19,500Mt nickelPRoduCT Ferronickel 20% Ni contentNI oRE CoNSuMPTIoN 1,755,000 WMT (est)NI oRE GRAdE oN SITE 1,9-2,1%INTEGRATEd oN SITE Yes

“Antam has financial difficulties since the nickel ore ban and the nickel price being low, it does not compensate with the ferronickel sales. The diesel powerplant is a real handicap for its profitability and the

new steam coal power plant 2X30MW provided by Sumitomo should improve the situation (-1$/lb).”



6. Projected projects to 2017

Non-NPI projects

CoMPANy APoMALAA EXTENSIoN

SHAREHoLdERS 65% Republic of Indonesia35% Public

LoCATIoN Pomalaa, SulawesiTECHNoLoGy EAF (electrical arc furnace)PRoCESS +1 lines EAFPowERPLANT + 60MW coalPRoduCTIoN CAPACITy (NI) 9,000Mt nickelPRoduCT Ferronickel 20% Ni contentNI oRE CoNSuMPTIoN 810,000 tonnes (est)NI oRE GRAdE oN SITE 1.9-2.1%INTEGRATEd oN SITE YesCAPEX $572 million TIMELINE Sep 2015

“The extension will improve the capacity and the production costs that are necessary to be competitive on the market for Antam that had difficulties to commercialize its Ferronickel.”CoMPANy BGIN PRojECT

SHAREHoLdERS 100% Dr Agung Dewa Chandra

LoCATIoN Gresik, East JavaTECHNoLoGy HPALPRoCESS 1 Line HPALPowERPLANT Plug to the gridPRoduCTIoN CAPACITy (NI) 10,000Mt nickelPRoduCT Ni metal >98%NI oRE CoNSuMPTIoN 1,030,000 tonnes (est)NI oRE GRAdE oN SITE 1,6-1,8%INTEGRATEd oN SITE NoCAPEX $150 million TIMELINE Q3 2015

“This is the big surprise of Indonesian nickel industry development. The Indonesian miner has launched the construction of an HPAL line in Gresik. The capex seems too low to be real

but the project is based in an industrial area and the walls were already existed and acquired for almost nothing so the only important expenses are focused on the process, all infrastructures are already available. Will it work? Like all hydromet

processes, it is full of uncertainties”

IN THIS CHAPTER

Non-NPI projects 40

NPI projects 41

Nickel smelter projects are flourishing in Indonesia, some serious, most not. We have detected 92 projects in total, only 19 serious enough to be considered in our projection until 2017. Among these 19 projects, 17 are smelter developments that will produce NPI, while the remaining two include ferronickel (>15% Ni content) and nickel metal. Moreover, we divide BF and EF projects, so the same producer can have two different project. Projection is restricted to 2017 because a BF project does not require more than 16 months, so some projects not on our list may appear after 2017.

This data is only available upon purchase of the

report.

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please contact info@

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This data is only available upon purchase of the

report.

To arrange a live online demonstration of this data,

please contact info@

metalbulletinresearch.com or [email protected]’

Other relevant Metal Bulletin Research publications include:

l Steel Plate Market by Grade, Dimension and Application: Global Strategic Outlook to 2024

l The Turning Point for Steel Metallics: A Global Market Outlook to 2021 for Iron Ore, Scrap, DRI/HBI and Pig Iron

l A Strategic Market Outlook for the Middle East Steel Industry out to 2020

l The NAFTA Steel Industry: State-by-State & By-Province Analysis and Forecasts out to 2022

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