Indonesia's Mining Quota Freezes, Will It Impact Steel Market?

The global Nickel market is bracing for significant changes in 2023 as Indonesia, the world’s largest Nickel producer, has decided not to issue new mining quotas in 2023. This decision is expected to have far-reaching consequences in the Stainless Steel market worldwide. Let’s delve into the implications of Indonesia’s move and its potential impact on the Steel market, with a specific focus on India.

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Indonesia, a dominant player in the global Nickel market, produced an estimated 1.6 million tons of Nickel in 2022, a substantial increase of 54% from the 1 million tons in 2021. However, the issuance of mining quotas faced delays due to investigations into illegal mining activities. This delay has led to a surge in Nickel Ore prices within Indonesia, affecting domestic buyers and industry players.

Septian Hario Seto, the Deputy Minister of Maritime Affairs and Investment Coordination of Indonesia has confirmed that there will be no new mining quotas in 2023. The new mining quota registration system will be operational in October 2023, allowing companies to submit applications from November 2023. The government will then process quotas for the year 2024. This delay in supply has already forced some Indonesian Nickel plants to restrict or even halt production due to the Nickel Ore shortage.

Stainless Steel Industry Impacted 

Nickel plays an important role in Stainless Steel production, with approximately two-thirds of the global Nickel supply being utilized in Stainless Steel manufacturing. The expected Nickel Ore supply shortage is likely to drive up Stainless Steel prices.

In India, Stainless Steel buyers are already grappling with import challenges due to the non-renewal of Bureau of Indian Standards (BIS) licenses for most global suppliers, including China and Vietnam. The news of no new mining quotas for Nickel could further fuel concerns about input costs if a supply shortage arises.

LME Influence On Nickel Futures

The London Metal Exchange (LME) is a significant influencer in the Nickel futures market. Recent uptrends in Nickel prices suggest a bullish outlook for the Steel industry. As Nickel is a crucial raw material for producing Stainless Steel, any disruption in its supply chain can have cascading effects on Steel prices globally.

Nickel Price Index

To stabilize Nickel prices and mitigate market fluctuations linked to the London Metal Exchange’s pricing standards, the Indonesian government announced plans to introduce a Nickel price index by the end of 2023. This index will serve as a basis for specialized export taxes on Nickel products.

Septian Hario Seto has stated that the Nickel price index will be unveiled in November 2023, potentially using Nickel Pig Iron, mixed hydroxide precipitate, and Iron-nickel alloy prices as reference points.

Market Outlook

The global Nickel supply dynamics are poised for a significant shift in 2023 due to Indonesia’s decision to freeze new mining quotas. This move is likely to impact the Steel industry, particularly the Stainless-Steel segment.

India, already facing import challenges, may witness increased input costs if a supply shortage materializes. With the festive season underway, domestic Steel prices are expected to remain elevated. Furthermore, LME’s influence on Nickel futures indicates a bullish trend for the Steel industry globally.

OFB’s Insight

Indonesia’s decision to suspend new mining quotas and the forthcoming Nickel price index is likely to impact the global Steel industry. Rising Nickel prices and potential supply shortages pose challenges.