Here’s a mining pop quiz. Indonesia has effectively banned exports of raw minerals, for an indefinite period. That includes nickel ores. And Indonesia is, or at least was, the source of almost a third of the world’s mined nickel.
There’s more. Inventories of the stainless steel ingredient – in warehouses of the London Metal Exchange, or in Chinese ports – remain high after years of overproduction. But they have stopped growing. Nickel prices have already hit a two-year high in anticipation of demand outpacing production for years to come. Here’s the question then: with prices where they are, should miners outside Indonesia start to increase capacity?
It’s a trick question. Nickel prices last spiked in a big way in 2007. They hit $37,000 per tonne then, versus the rally to nearly $20,000 so far this year. Miners laid on new production in response – right at the peak. New mines take time to develop, though. Big projects started in 2007 – such as Vale’s On?a Puma and Anglo American’s Barro Alto, both in Brazil – began production only at the top of the next price cycle in 2011. The ban may not last long enough to justify new mines.