METAL MINING SECTOR 

keep calm and buy black beauty

Nickel: thebest performer in base metal commodities

YTD 2019, nickel price soared by 67% to US$ 17,900/tonnes (vs US$ 10,079/ton), as a result of ban nickel ore. Indonesia government has confirmed to impose a ban on nickel ore export to the end of December 2019, sooner than expected. We see this bring another supply disruption for nickel market in 2020.  Nickel market has been faced with a consistent supply deficit over the preceding year (Augst’19 Nickel LME deficit -56,000 tonnes). We see, Philippines and Indonesia remain the key to supply constraint. From Philippines, we expect supply disruption will likely continue. The government has indicated to conduct 6-monthly reviews, and we believe exports will be restricted below 18 Mt. We forecast total nickel supply of 2,172kt for 2019. Hence, the market deficit should easily be more than 80kt in 2020F.

Nickel: demand growing thanks to EV boom

Demand for automotive EV battery will surely to increase sooner rather than later. Nickel is becoming a strategic metal for the battery supply chain, while the market currently accounts for 750kt in 2018 (vs 111kt in 2013). Meanwhile, with the introduction of electric vehicle in Indonesia, we forecast EV batteries demand on nickel to rise to 95kt in 2020 and 240kt in 2025 (from only 44kt in 2018).This will become the key catalyst for the sector and believe this is just the beginning of an exciting story of nickel and booming future.  At the moment, we estimate global nickel price averaging at US$ 17,000/ton in 2020 (+17,4% YoY).

Tin: supply remain constrained in 2020

Just like the other base metals, tin price has been overshadowed by concerns from supply tightness.The global tin supply will remain tight as the lower ore production from Indonesia and Myanmar. Indonesia has banned any trading of tin ingots from illegal mines since last year. The impact is clearly seen on the fall of tin shipments in 2018 (-3% YoY to 75,678 tons). With the new law enforcement and stricter regulations, we expect tin mining activities to remain strictly monitored, thus, the tin shipment may fall to 72,000 in 2019 (-7% YoY) and 70,000 in 2020 ( -3% YoY). From Myanmar, supply tightness is likely to show material impact in 2020. We estimate Myanmar’s ore stockpile to be depleted by the end of 2019 as the country shifts from open-pit to underground mining.

Tin: LME tin inventory on a decline, averaging tin price at US$22,000/ton

The London Metal Exchange (LME) tin inventory is currently at historical low for the past 10 years, or below 10,000 tonnes. Following Indonesia’s revised tin export rules in 2018, LME’S refined inventories have dropped significantly. Given the slow recovery in Indonesia exports, tin global market could be tighter than what the fundamentals suggest. We expect global tin price remain elevated in 2019, as a global supply remains an issue. We estimate global tin price averaging at US$ 22,000/ton +9% YoY in 2020F.

Overweight Rating

We remain confident with our overweight call on the sector metal mining. Maintain BUY and TPs for INCO Rp4,500/share (20.3% upside), ANTMRp 1,300 /share (22.1% upside), and TINS Rp1,775/share (58.5% upside).

Key Risk: 1)Changes in government policies; 2)Higher than expected production 3). Significant drop in base metal prices.