INCO affected by nickel price that still uncertain

JAKARTA. Nickel price will remain uncertain after Indonesian government issued a regulation on mineral-ore exports. The nickle price has come down 6%-7% since the regulation was issued. 

According PT Maybank Kim Eng Securities research on Wednesday (25/1), the biggest question mark would how much supply will come from Indonesia. Theoretically speaking, if the government strictly enforces the regulation, the supply from Indonesia might be only 3% of global supply. 

But can the government make sure there won’t be any smuggling? That’s something  still have to wait and see. That said, Kim Eng maintain the SELL rating on PT Vale Indonesia Tbk (INCO) with target price IDR 1,200. INCO has tumbled about 3.31% to 2,340 per share as of 11:30 AM (27/1). 

"We think the management has done a very good job in lowering the costs, but unfortunately we don’t think that is enough to counter nickel-price drop," said the research. 

Nickel-price volatility remains the main factor driving earnings sensitivity. Nickel-price uncertainty remains high, especially after the government relaxed nickel-ore exports, which can add supply from Indonesia. 

Kim Eng analysis suggests that nickel prices need to remain at least at US$ 10,000 per tonne for INCO to start breaking even. Ceteris paribus, the break-even level will also be achieved should oil and coal prices stay at US$ 54 per barrel and US$ 73 per tonne, lower than current prices of US$ 55 per barrel and US$ 82 per tonne.