Indonesia's environmental concerns intensify worries about nickel supply

The recent advisory from the Government of North Maluku Province, Indonesia, to suspend mining activities in the Sagea region due to environmental pollution has had notable implications for the nickel mining industry. While the advisory was not legally binding, it prompted concerns and discussions within the sector.

Five mining companies, namely PT Weda Bay Nickel, PT Halmahera Sukses Mineral, PT Tekindo Energi, PT First Pacific Mining, and PT Karunia Sagea Mineral, were involved in this situation. Interestingly, two of these companies, PT First Pacific Mining and PT Karunia Sagea Mineral, had not yielded any production at the time of this report.

However, PT Weda Bay Nickel, PT Halmahera Sukses Mineral, and PT Tekindo Energi were significant nickel ore suppliers in Indonesia, collectively contributing to nearly 40% of the country's monthly nickel ore supply.

The market's response to these developments has been notable, as concerns over nickel ore supply were exacerbated. This was compounded by an ongoing anti-corruption investigation initiated by the Indonesian government, which had already caused a 30% increase in ore prices in the Philippines.

Crucially, the mining permit issuance process had stalled, reverting to older practices following the anti-corruption investigation, which was more thorough. If this issue is not adequately addressed by the end of the year, it is anticipated that nickel ore supply in the fourth quarter could decrease by as much as 30%, equivalent to 12 million wet tonnes.

These supply disruptions have had a cascading effect on the industry, causing raw material costs to rise throughout the nickel supply chain. For instance, nickel sulfate prices had hit bottom in late August due to increasing costs and the depletion of low-priced sources.

However, prices for materials like MHP and high-grade nickel matte remained stable despite a decline in production scheduling among precursor manufacturers.

Looking ahead, the nickel market is expected to remain relatively stable through September. This stability can be attributed to rising risk appetites among market investors, influenced by various stimulus policies.

Additionally, the commissioning of electro-winning production lines in Indonesia is expected to ensure a sufficient supply of pure nickel, which will likely serve as a cap on nickel prices in the near term.