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lobal industrial metal prices, including nickel, have dropped significantly amid the COVID-19 pandemic. The price of nickel at the London Metal Exchange (LME) stood at US$11,355 per ton on Friday, lower than $14,025 posted at the end of last year and reflecting a decline of 19 percent year-to-date (ytd).

The average mineral price is $12,808 per ton so far this year, decreasing 8.3 percent from the 2019 average price of $13,969.

In 2020, a surplus in the nickel market will increase as the COVID-19 pandemic will hurt demand. According to a report by Norilsk Nickel, one of the world's leading nickel producers, nickel consumption is expected to grow only 2.8 percent in 2020, less than the earlier forecast of 3 percent.

In term of volume, primary nickel consumption is expected to reach 2.45 million tons this year, down from the previous projection of 2.54 million tons. On the other hand, the global nickel supply is forecast at 2.56 million tons, unchanged than the previous forecast.

On that basis, the nickel surplus in 2020 is expected to increase to 108,000 tons, higher than the previous forecast of 42,000.

The large surplus eventually lowers price expectations. The median of projections made by analysts surveyed by Bloomberg in March showed a nickel price expectation of $13,019 per ton this year, lower than 2019’s average price of $13,969. Likewise, the nickel futures market showed a price of $11.476 per ton for December deliveries, much lower than last year's.

Indonesia, one of the world’s leading nickel exporters, undoubtedly feels the pinch from the declining global nickel price. Indonesia is the largest exporter of ferronickel, with a 45.1 percent market share. It is the second-biggest nickel ore exporter after the Philippines with a 37.2 percent of the global market share.

Last year, Indonesia’s total export value of nickel and its derivative products reached $8.3 billion, up 38 percent from 2018. The increase in nickel production capacity was a primary factor in the rise of nickel exports, especially for ferronickel products. Ferronickel exports skyrocketed by 86.2 percent to 1.6 million tons in 2019. In addition to the increase in production capacity, the average nickel price in 2019 also increased by 5.9 percent annually.

We predict the total export value this year to decrease from 2019. Four rationales support this prediction. First, nickel production is expected to be hampered owing to the spread of COVID-19. Many smelters will reduce their output due to a smaller workforce available during the pandemic as many workers are required to stay at home to slow the spread of the virus.

Second, the movement of goods and people from foreign countries, especially China, will be disrupted following the government's effort to curb the spread of the virus. At the same time, nickel smelter investments in Indonesia mostly come from China, so are some capital goods and exports.

Third, there will be no nickel ore exports in 2020 following the government’s policy to stop low-grade nickel ore shipments. In 2019, total nickel ore exports were equivalent to 13.3 percent of total nickel-related exports. Lastly, lower global nickel prices and shrinking demand will hit Indonesia's nickel exports this year.

To anticipate the decline of revenue due to falling nickel exports, nickel producers may take some efficiency measures to reduce their costs. Fortunately, current energy prices, especially oil and coal, are already at low levels and will lower energy costs for the companies.

However in the long-term, the prospect of Indonesia's nickel industry is still positive. Nickel demand from the stainless steel industry is expected to grow consistently in line with global economic growth. Currently, the stainless steel industry holds a 73 percent market share of global nickel demand.

Furthermore, nickel demand from the battery industry will increase substantially in the future, according to the “2020-2030 Global Nickel Outlook” by Bloomberg. Nickel demand from the battery industry was only 6 percent of global nickel demand in 2018. However, the battery industry share to global nickel demand is projected to reach 43 percent in 2030. This increase is in line with the growth of the electric vehicle industry, which is projected to become the primary transportation means in the future.

Indonesia should benefit from these trends to attract investment in the domestic nickel industry. The reserves owned by Indonesia are a reliable bargaining power to attract investments in local nickel smelters. Therefore, the government policy that prohibits nickel ore exports is appropriate as it conserves our nickel reserves and forces other countries to invest directly in Indonesian nickel smelters.

Moreover, the government should also continue to increase nickel exploration activities to find new nickel reserves. Massive smelter construction means more nickel reserves are needed to support raw material availability.

According to the Energy and Mineral Resources Ministry, Indonesia's current nickel reserves stand at 698 million tons. Meanwhile, there will be 29 nickel smelters start operating by 2021. Their total nickel ore consumption will reach 96 million tons annually. Therefore, current proven reserves of nickel are only sufficient for seven years if there are no new nickel reserves are found in the future.