Nickel ore prices in Indonesia, the world's top producer, have risen on tighter supply after government delays in issuing new mining quotas that has also prompted smelters to curb production, industry participants and analysts said this week.
Rising nickel ore prices could translate into higher costs for stainless steel and for battery components for electric vehicles and other electronic gadgets.
Indonesia, which holds the world's largest nickel reserves, requires miners to receive a production quota known as an RKAB but the issuance this year was delayed by the country's presidential election and a change in the validity of the permits to three years, from one year previously, according to analysts and market sources.
Mining has slowed because of the delay, curbing supply, and the price of the main grade of nickel ore in Indonesia has risen in February by 14% from last month to around $36 per metric ton, according to managers at three Indonesian smelters and a Chinese trader who focuses on the Indonesian nickel market.
An Indonesian mining ministry official said on Monday it was working on approving more RKABs to address the delays, but the supply concerns remain.
"We've lowered production by quite a lot due to the ore supply tension," said one of the sources, a manager at a major Indonesian nickel smelter, who asked to remain unidentified.
"It is a very tight-supplied market and smelters are all sitting on thin stocks," he said.
Many Indonesian smelters started slowing operations in January because of lower ore supply expectationsand weak seasonal stainless steel demand, and some have cut production further up to 50% this month, according to the smelter sources.
Two of Indonesia's biggest smelters, Chinese-owned Tsingshan Group and Jiangsu Delong Nickel Industry, did not respond to requests for comment on their smelting activity.
Indonesia's smelters procured raw material in the fourth quarter and are nearly running out of stock now, analysts at China Futures wrote in a note on Tuesday.
Indonesia produced 1.05-million metric tons of ferro-nickel in January, down 1.8% from the prior month, data by Mysteel showed.
Prices in Indonesia for nickel pig iron, the main feedstock for stainless steel, rose to a near three-month peak of 960 yuan ($133.35) per ton on Wednesday, up 3% from a month earlier, Mysteel data showed.