In January, the Indonesian government instituted a ban on exports of unprocessed ore, the prime source for the production of nickel pig iron (NPI) in China. "If the ban is not lifted or loosened sometime in the future, the global nickel market is expected to undergo significant structural changes," Norilsk said.

"We believe that ores brought from the Philippines and New Caledonia to China cannot fully make up for the lost Indonesian ore feed to keep the production of NPI flat," the company said. Furthermore, as the quality of ores brought to China from other sources will be inferior to the Indonesian ores, "we would expect to see rising cash cost of NPI production in China, which would push the global nickel cost curve upwards," it added.

The commissioning of new nickel mines and production growth at existing projects outside China "can only partly compensate for the expected drop in Chinese NPI output," Norilsk said. "Coupled with stable demand from stainless steel industry this may cause a deficit in the nickel market as early as in Q3 2014, depending on the size and quality of the accumulated nickel ore inventory in China," the company added.

© Platts