Nickel smelters in Indonesia, the world’s largest nickel producer, are resorting to rare purchases of ore from the Philippines to alleviate tight supplies, disrupting the traditional trade flows of this vital raw material and contributing to cost increases throughout the supply chain.
Delays in the issuance of mining quotas by Jakarta, coupled with the suspension of operations at a key site belonging to state miner Aneka Tambang (Antam) due to a corruption investigation into mining allowances, have caused ore prices to surge. Prices have risen by approximately 8% this week, following a 10% increase the previous week.
To mitigate potential ore shortages, some companies in Indonesia are now importing ore from the Philippines, the world’s second-largest supplier of nickel ore. They are doing so in anticipation of further delays in the issuance of new mining quotas. These imports from the Philippines are seen as a cost-effective solution, particularly for low-grade limonite ore.
While Indonesian miners prioritize high-grade ore for their limited production quotas, the imports from the Philippines offer a cheaper alternative to domestic ore, offsetting some of the rising costs.
Indonesian trade data indicates that the country imported 53,864 metric tons of nickel ore in the first half of 2023, up significantly from the 22,503 tons imported in the entirety of 2022. However, imports from the Philippines only commenced in May and have been delivered to Morowali port, a significant nickel processing hub partly operated by Chinese nickel giant Tsingshan Group.
According to Wood Mackenzie analyst Andrew Mitchell, the ore from the Philippines is generally of lower grade than Indonesian material, which could result in higher operating costs due to lower production yields from the same tonnage of ore. However, the cost advantage of the Philippine ore compared to domestic sources helps mitigate these rising costs.
Chinese consultancy Mysteel predicts that imports from the Philippines could reach 100,000 tons for July and August combined due to the supply tightness. In 2022, the Philippines accounted for 11% of global nickel ore supplies, mining 360,000 tons of nickel in ore.
The surge in demand for Philippine ore is also driving up prices in China as buyers stock up amid tighter Indonesian supplies and in anticipation of the rainy season in the Philippines starting in October. Philippine ore with a 1.3% grade, landed at China’s Lianyun port, has surged by 20.6% in the past month to $41 per ton, the highest level since March, according to Mysteel data.