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Finance & Economy

Chinese nickel company in the black after registering record profits as a result of Indonesian bans


Xinxin made its Hong Kong market debut in October 2007. Photo: Dickson Lee

Xinxin made its Hong Kong market debut in October 2007. Photo: Dickson Lee

China’s second largest nickel company Xinjiang Xinxin Mining Industry revealed that it’s cash generative once again following a 300 percent rise in revenue for the 2014 fiscal period.

According to a report on the South China Morning Post, the income boost was due to towering nickel prices last year, lower production costs, a new copper project, and rising sales.

In its recent SEC filing at the Hong Kong stock exchange, the company revealed that it earned 844.9 million yuan in 2013. It also sold 4,182 tons of its nickel cathode the same year. The product was the company’s top cash cow, accounting for 51.2 percent of its revenue.

Meanwhile, its copper project, which is capable of producing 100,000 tons of copper annually, was able to sell 7,936 tons of copper cathode in 2013, and 3,273 tons in the first half of 2014.

The sharp rise in nickel prices was due to Indonesia’s ban on the export of its raw minerals, which was upheld by the country’s Constitutional Court in December 2013. The government imposed the ban in January, despite opposition from domestic mining companies. Indonesia implemented the ban to boost foreign investments in its local nickel production and processing segment.

Indonesia was the biggest producer of mined nickel last year, according to Bloomberg. It was also the main supplier of nickel to China, the world’s largest consumer of nickel.

As a result of the ban, nickel and aluminum prices continued to steadily climb on the London Metal Exchange throughout last year. Nickel futures rose 18 percent last year to $16,370 per metric ton, while aluminum grew 9 percent to $1,961.50 a ton.

A number of nickel companies proclaimed their optimism due to the uptrend. In August of last year, Norilsk Nickel revealed that it expected nickel to continue its steady rise through 2015.

“We remain bullish on nickel in the medium term assuming that the Indonesian ban remains in place unaltered. We expect NPI output in China to reduce by over 50 thousand tonnes year-on-year this year and at least another 150 thousand tonnes year-on-year in 2015. We also expect that the substantial part of the lost Chinese NPI volumes to be compensated by the ramp-up of new laterite projects in Indonesia, Oceania, Madagascar and Latin America,” the company noted.

Norilsk Nickel added that production from such projects would “accelerate” due to favorable nickel prices, but “is still subject to the successful resolution of many technical issues,” especially on the demand and supply side. “Overall, we expect that marginal supply growth will not match the increase of global metal consumption, thus driving the nickel market to balance this year and to a sizeable deficit in 2015,” the company explained.

Amur Minerals Corporation (OTC:AMMCF), a mineral resource explorer and development firm with a project in the Russian Far East, is also one company that is banking on nickel’s upside potential.

“We’re very encouraged in this and we have a great neighbor to the Southwest, in China, who is a very hungry nickel consumer,” Amur chief executive Robin Young said in an interview with BRR Media.

The company recently defined a detailed exploration program for its Kun-Manie mine, which ranks among the top 20 nickel projects globally.

Glencore’s (LSE:GLEN) Kenny Ives also believed that the deficit expected to come out of the Indonesian ore ban would support nickel prices this year through 2018. According to Platts, Ives announced at his company’s investor day in December that he expects a “balanced 2015” and that a deficit would take place this year until 2018.

China scrambled to find a new ore supplier to cater to its stainless steel production industry after Indonesia announced its ban on raw material exports. In early May, Reuters reported that Chinese, as well as Japanese companies, bolstered their nickel imports to hedge against price increases and “a fear of shortages.”

A commodity fraud, however, at China’s Qingdao port in the eastern province of Shandong strained the country’s commodity’s sector in June. A report on the UK edition of the International Business Times revealed that “companies had used fake receipts to obtain multiple loans against a single cargo of metal at the port.”

The scandal-hit port saw the exit of 73,000 tons of refined nickel and 86,000 tons of refined zinc from June to October, as detailed by Reuters in a report. Nickel, in particular, was exported to safe havens in Malaysia and South Korea, increasing nickel stocks in LME warehouses. This event temporarily reversed the nickel price rally which took place at the outset of the year because of the ore ban.

The price of nickel trended lower recently due to sluggish demand from China and a strengthening dollar. Prices eased in February by as much as 10 percent, according to a report on the Nikkei Asian Review.

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About Sandy Miguel-Descalso

Financial writer and editor based in the Philippines with a thirst for travel and photography.

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