Record Nickel-Note Issuance Spurred by Indonesia’s Export Ban

Jun 20, 2014 1:09 am ET

June 20 (Bloomberg) -- Issuance of structured products tied to nickel have surged to a record this year after Indonesia, the biggest producer of the mined metal, banned raw-ore exports.

Banks issued 198 so-called certificates linked to the material used in stainless steel in the first five months of this year, outstripping all annual totals in data compiled by Bloomberg going back to 2004. The price of the element, which is also used to make rechargeable batteries, has jumped 33.6 percent in 2014 after Southeast Asia’s largest economy instituted the ban in January to encourage local processing.

“We have seen a recent increase in interest in nickel- linked notes” due to the export ban by Indonesia and concerns that Russia will face sanctions that may affect nickel supply, Jean-Luc Jacob, head of commodity trading at DZ Bank AG, said in an e-mail. The Frankfurt-based bank issues the securities to individual investors in Germany.

Indonesia and Russia together supply about a quarter of the world’s nickel, Australia & New Zealand Banking Group Ltd. estimates. The Southeast Asian nation halted ore shipments on Jan. 12 in a bid to encourage overseas companies to invest in Indonesian smelters. Russia’s intervention in Ukraine has fueled speculation that the second-largest refined nickel producer could face economic sanctions involving the metal.

July Election

Indonesia is poised to keep the restriction on exporting nickel as Joko Widodo and Prabowo Subianto, both candidates in the nation’s July 9 election, support the policy. Continuation of the ban may keep pushing prices higher and make nickel one of the best-performing metals in the second half of this year, Mark Keenan, Singapore-based head of commodities research at Societe Generale SA, said in a June 16 interview.

“The overall picture of the nickel market has changed dramatically as a result of Indonesia’s ban on nickel ore exports,” Keenan said. “This one factor alone is likely to shift the nickel market from structural oversupply to a balanced outcome this year, with sizeable deficits probable in coming years.”

Higher prices of the industrial metal may spur demand for more structured products from individual investors, who are generally trend-following, according to DZ Bank’s Jacob.