Mining crackdown in Philippines boosts nickel prices

The Philippines is the largest exporter of nickel ores, accounting for 23 percent of global supply. Hence any change in the country’s approach towards the mining industry is likely to have a dramatic effect on nickel prices. The arrival of a new government in the country spurred uncertainty regarding the mining policy.

However, the ambiguity soon faded as Rodrigo Duterte, who was elected the Philippines’ President in May 2016, at the very outset warned environment-threatening mining companies to either upgrade their practices or face closure.

As soon as the new government came to power on June 30, the newly elected Environment and Natural Resources minister Regina Lopez publicly displayed her abhorrence towards the use of open pits to extract minerals. This threatened to potentially disrupt supplies and limit ore exports, and as a result, nickel prices crossed the crucial $10,000/tonne mark on July 4.

Since then, prices have held near $10,000/tonne levels as stern action against the mining industry by way of audits has only raised fears of a supply crunch in the near future.

In line with its efforts, the Philippines has already halted the operations of 10 mines, eight of them nickel producers, since it launched an audit in July.

Furthermore, at least 12 more mining companies are recommended for suspension as part of the government’s crackdown on miners.

On September 21, the results of an industry-wide audit that started in July revealed more than half of the operating mines in the country could be shelved. Most of the suspensions are expected in Mindanao, the second-largest Philippine island, which is estimated to sit on $300 billion worth of mineral deposits, from nickel and copper to gold.

Dante Bravo, President and CEO of Global Ferronickel Holdings Inc, the Philippines’ No 2 nickel producer, said volumes are expected to drop at least 20 per cent from a year earlier.

He added that suspension of mines during an audit initiated by President Duterte means that more than 100,000 tonnes of production has been lost.

Since the Philippines is China’s biggest nickel ore supplier, these developments in the South-East Asian country have bothered China. The Philippines shipped 34 million tonnes to Beijing last year, while exports this year dropped 27 per cent in January-July.

To protect itself from major supply disruption in the months ahead, China has already started stocking up its inventory. This can be seen in China’s nickel ore imports, which climbed to a 13-month high of 4.3 million tonnes in August.

Consumers could get some respite from a statement by Raden Sukhyar, Chairman of the Indonesian Smelter and Minerals Processing Association, that output of processed nickel will rise from 160,000 tonnes of contained metal in 2015 to 217,500 tonnes in 2016 and 363,000 tonnes in 2017.

Overall, the upcoming mining audit results and rising Chinese imports in anticipation of further mine closures in the Philippines will only push prices higher.

Hence, we expect nickel prices to trend higher from a two-month perspective. LME Nickel (CMP: $10,485/tonne) might rise to $11,400, while MCX Nickel (CMP: ₹697.2/kg) will surge towards ₹750/780.

The writer is Associate Director — Commodities & Currencies Business, Equity Research & Advisory, Angel Broking. Views are personal.