Turmoil In Both Indonesian And Filipino Mining Policies Means Volatility
MetalMiner | Feb 10, 2017 04:58AM ET
Nickel was said to be in a supply deficit last year of 209,000 metric tons, according to Bloomberg , and is projected to remain in deficit this year to the tune of 188,000 mt.
The Philippines has just ordered the closure of 21 mines and the suspension of another six. The island chain is a source of around half of the country’s nickel output. After Indonesia’s 2014 export ban, the Philippines became the world’s largest exporter of nickel ore and the primary supplier to China’s massive nickel-pig iron industry, raw material for the alloying of stainless steel.
h2 Stagnant Prices/h2Yet, while there has been an uptick in prices, nickel’s performance can hardly be said to have been stellar. Since the middle of the summer the London Metal Exchange‘s LMEX index of six key base metals is up almost 18% yet nickel has risen by only 1.2%.
Deficit or not, the market does not seem to be in short supply yet. Between Indonesia and the Philippines the two countries produced about 700,000 metric tons of nickel a year in 2014 and 2015, with about 170,000 mt of that coming from Indonesia due to the export ban.
Chinese buyers simply switched to the Philippines as supplies dried up from Indonesia and drew down on extensive stocks they had amassed in advance of the export ban. Just as the Philippines’ new firebrand environment and natural resources secretary, Regina Lopez, moved to close environmentally damaging open pit mines, Indonesia is increasing exports again. Investors have their eye on a probable surplus towards the end of the decade as both countries return to some level of consistent supply. This graph illustrates the rise of the Philippines and since the export ban the relative decline of Indonesian shipments.
Nickel from major producers in the last nine years. Source: U.S. Geological Survey.
Of course, it’s not clear at this stage how quickly mining companies will be able to implement stricter environmental conditions that are likely to be applied by the new administration of Philippines President Roderigo Duterte, but it would seem that the action is not unjustified with comments in the Financial Times describing the Philippines’ nickel supply chain as an environmental disaster.
Under such complex, conflicting circumstances — Indonesia potentially easing export restrictions and allowing an increase in low-grade ore exports, against the Philippines rather heavy handed closure of half the country’s nickel miners — it is difficult to read the direction prices could take in the first half of the year.
Get The News You Want
At 18%, net short positions are the highest in futures markets for any of the base metals. Investors are taking a bearish view. We are not so sure Indonesia’s return to exports is going to open flood gates, conditions are being applied and the impact could be limited. Likewise, we do not see a quick fix to the Philippines position, it seems genuinely driven by a strongly held view that open pit nickel mining is causing extensive environmental degradation and only drastic action will achieve a remedy; with such a commitment exports could be restricted for some time to come.
While nickel is unlikely to do an about face and start a bull run, buyers should keep a close watch on developments in these two southeast Asian suppliers, they are the swing producers and have the potential to unwittingly cause price mischief in the year ahead.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.