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Nickel ETF in Focus on Indonesia's Export Ban

Indonesia has decided to ban nickel ore exports with immediate effect. This follows last month’s decision to expedite the export ban on all grades of nickel ore, two years earlier than previously announced, i.e. from Jan 1, 2020 onward. Having nickel reserves valuing around $350 billion, the Indonesian government targets to rapidly improvise smelter construction.

Following the news, there was a 2.2% increase to $17,000 a tonne in the benchmark nickel on the London Metal Exchange (LME). Moreover, the most active nickel contract on the Shanghai Futures Exchange (ShFE) rose around 2.8% to its two-week high level of 136,630 yuan ($19,363.94) a tonne.

What Triggered the Ban?

It is being believed that the government had to accelerate the embargo for strengthening and establishing its local smelting industries of nickel pig iron (NPI) as well as stainless steel and electric vehicles (EV) battery in lieu of limited nickel reserves. Indonesia will be requiring 81 million tonnes nickel ore supply annually. It currently has a base of 11 working smelters with input capacity of 24 million tonnes of ore. Moreover, it plans to add 25 more smelting units. In this regard, Bambang Gatot Ariyono, the mining ministry's director general for coal and minerals, commented“the national proven reserve for nickel is only 698 million tonnes, which can only supply smelting facilities for 7.3 years.”

Moreover, nickel is required in lithium batteries to power gas-free cars. Meanwhile, Indonesia is planning to become an electric-vehicle hub. In fact, some foreign companies like China’s Tsingshan Holding Group are investing in Indonesia’s nickel-battery processing plants. Moreover, Indonesia’s Harita Group and China’s Ningbo Lygend are planning another battery nickel plant. Thus, the decision to impose bans on nickel ore is in tandem with the country’s business plans.

Nickel ETF to Shine

iPath Series B Bloomberg Nickel Subindex Total Return ETN JJN — up 57.6% year to date

The fund provides exposure to the Bloomberg Nickel Subindex Total Return, which in turn, shows potentially available returns through an unleveraged investment in the futures contracts on nickel. The fund has AUM of $8.7 million with an expense ratio of 0.45%. It trades in three months’ average volume of about 1,100 shares (read: Best Commodity ETFs of Q3).

Conclusion

Indonesia stood out as the largest nickel producer globally in 2018. It produced around 560,000 tonnes of nickel. Also, its average production is expected to increase 8.1% between 2018 and 2027. The country is projected to outperform its rival nickel producers like the Philippines and Canada. The ban is likely to create supply shortages of nickel ore and keep the prices high in the global markets. In fact, BMO predicts a nickel shortfall of 51,000 tonnes in 2020 and a deficit of 127,000 tonnes in 2021.

Meanwhile, market participants are of the opinion that nickel is over priced now and believe that the prices will start retreating. They also believe that the $17,000 mark was a resistance for nickel prices in the last week ending Oct 25.

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iPath Series B Bloomberg Nickel Subindex Total Return ETN (JJN): ETF Research Reports
 
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