“Did you know that Indonesia is at a crossroads? It is!” So said Homer Simpson, flipping vacuously through the Economist. But this is no joke: a ban on exports of unprocessed ore in January really could put Indonesia’s economy in a tricky place. The ban, aimed at building a local processing industry, is a bad idea when foreign investors are already getting spooked. The rupiah fell by a fifth against the US dollar in 2013. And the Federal Reserve is tapering.

The ban might seem like a terribly good idea to investors long nickel – the worst-performing base metal of 2013 because of excess supply. The nickel price, down by a fifth this year to $14,000 a tonne or so, is now below its marginal cost of production. Indonesia is the world’s biggest nickel producer. Time for a rebound on the back of the ban?

Not quite. First, the ban’s actual hit to Indonesian production could be less than total if international miners exploit a loophole that lets them export ore if they smelt the stuff first. Both Rusal and Glencore have beaten a path to Jakarta with blueprints for smelters; they have more knowhow than locals. An ironic outcome, given the ban’s aims.

Second, the nickel business is still going through a structural shift to more capacity. Chinese production of nickel pig iron, a low-grade cheap alloy, has risen to a fifth of global nickel production from 5 per cent half a decade ago. Chinese smelters rely on Indonesian ore, but they have been stockpiling ahead of the ban. Deutsche Bank estimates that smelting and refining account for four-fifths of the income stream from nickel pig iron. Ninety per cent of the income from a metal such as copper, by contrast, goes to its miners.

Beyond the Indonesian ban, investors long nickel face their metal more or less turning into aluminium, which has similar low barriers to entry – and where prices are staying low. D’oh!

Email the Lex team in confidence at lex@ft.com

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