Indonesian Events Shake Up Nickel Market for Battery Production
Loose Cannon's Take:
Indonesia's nickel industry, once a booming powerhouse, finds itself in choppy waters with whispers of a government tax bump and a shocking divestment by a major investor. This turbulence comes at a time when the nickel market seems to be perking up again after some rough seas.
The proposed hike on nickel taxes, a key player in manufacturing stainless steel and rechargeable batteries, is part of a broad government review on taxes in the mining and metal sectors. In this proposed scheme, a current royalty of 10% on mined nickel ore could be swapped for a sliding scale dependent on ore prices, starting at 14% and climbing all the way up to 19%. Similar escalations are planned for Indonesia's copper and coal industries as the government looks to mine additional revenues for social welfare spending.
To add salt to the wound, the Indonesian Government is also considering a reduction in the extraction volume, aiming to bring some stability to the market.
It's a tough break for Indonesia's nickel industry, which took home a whopping 63% share of the global nickel market over the last five years. This rapid growth can be attributed to huge Chinese investments in Indonesian mining and processing, which, ironically, has contributed to the collapse of the nickel price and the closing of mines from other countries.
Nickel prices swiftly dropped from a staggering $30,000 per ton three years ago to a dismal $15,000/t earlier this year, but signs of recovery started to surface recently, lifting the latest trades to $16,478/t, a hefty 9% increase in just six weeks. However, whether this recovery is a temporary blip or the start of a lasting comeback remains to be seen later this year. The current predicament for nickel miners is the overabundance of nickel piled up in warehouses and commodity exchanges worldwide.
The shockwave of the proposed tax hike and the substantial sell-off by Karunia Group's subsidiary, Harum Energy, sent Indonesia's nickel industry into a tailspin. Harum Energy offloaded a whopping 178 million shares in a block trade, causing Nickel Industries' share price to plummet by 25% on Monday, from A76 cents down to A57c, before partially rebounding to trade around A64c. Although more sales from Karunia Group are possible, they have entered a 45-day escrow period before making any further decisions.
Analysts at Bell Potter, an Australian stockbroking firm, have kept a buy recommendation on Nickel Industries, dismissing the Karunia sell-off as a "clumsy trade." They are optimistic about Nickel Industries' future, predicting a more than doubling of the stock's share price, from the current A64c up to A$1.47.
- The proposed tax hike on nickel, a vital component in stainless steel and rechargeable batteries, is a concern for Indonesia's nickel industry, given the sensitive market conditions and the government's review on taxes in the mining and metal sectors.
- In the wake of this proposed tax increase and the recent divestment by a major investor, Indonesia's nickel market faces a challenging period, with prices showing signs of recovery, but the long-term outlook remains uncertain.
- Despite the current turmoil in Indonesia's nickel industry, some stockbrokers remain optimistic about companies like Nickel Industries, with analysts at Bell Potter predicting a significant rise in the stock's share price, despite a major sell-off by a local subsidiary.