(Corrects third paragraph under subheading to show ferronickel
imports rose to 747,097 tonnes, not 747.097 tonnes)
By Clyde Russell
LAUNCESTON, Australia, March 20 Just how worried
should nickel markets be about the latest threats by Philippine
President Rodrigo Duterte to stop all mining in the world's
biggest exporter of the metal ore? Probably not too much.
The reason to be relatively sanguine about the prospects for
nickel supply isn't that Duterte is unlikely to follow up on his
latest threat, although he may not.
It's that even if he does, the market is likely to be able
to cope with the loss of Philippine nickel ore, despite having
to make some short-term adjustments.
In the latest twist to Duterte's ongoing battle with his
country's miners, the bombastic and populist leader accused them
of funding efforts to destabilise his government, and mooted a
total ban on mining.
Duterte told a March 13 media briefing that he was looking
at a total mining ban "and then we'll talk", referring to
The Philippine leader has said his Southeast Asian nation
can live without a mining industry, and in broad terms he is
correct, with the sector contributing just 0.6 percent directly
to gross domestic product in 2016, according to data from the
government's Mines and Geosciences Bureau.
While mining will make a bigger overall contribution to the
economy once the services it consumes and the employment it
provides are factored in, it's likely true that the Philippines
can live without a mining sector.
But can nickel markets live without the Philippines,
particularly China, the destination of the bulk of the
Philippines' exports of unrefined ore.
The short answer is most likely yes, with the experience of
Indonesia's ban on its nickel ore exports in 2014 being
Indonesia banned the export of several unrefined metal ores
in January 2014 in a bid to encourage miners and customers to
invest in a domestic processing industry.
The price of benchmark nickel in London surged some
57 percent from early January in 2014 to May of that year, but
then embarked on a downward trajectory, before recovering last
year in line with a more general rally in commodity prices.
The reason for the price surge was the fear that the loss of
Indonesian supplies would substantially tighten the nickel
market, but the rally faltered once it become clear that Chinese
nickel producers could access alternative suppliers.
One of the main alternatives was the Philippines, which
ramped up its exports of nickel ore to China as Indonesia's
dropped to zero by 2016.
But China has been buying less Philippine nickel ore in
recent years, with purchases falling 5.9 percent in 2015 to
34.28 million tonnes and dwindling another 11 percent in 2016 to
30.53 million tonnes.
The Philippines still dominates China's imports of nickel
ore, accounting for 95 percent of the total, but China is also
buying less nickel ore overall, with total imports slipping 9
percent in 2016 to 32.1 million tonnes.
NO SHORTAGE OF NICKEL IN CHINA
China is still getting all of the nickel it needs, simply by
increasing the amount it buys in more refined forms.
Chinese customs classifies nickel imports into refined
nickel and alloy, ores and concentrates, and ferronickel.
Imports of ferronickel surged 60 percent in 2016 from the
prior year, with Indonesia storming back with a 250 percent
increase to 747,097 tonnes, a 71 percent share.
It's worth noting that Indonesian ferronickel isn't actually
the same as supplies from other countries, being less refined
and having a lower concentrate of nickel, as can be seen by
Chinese customs data that showed in December it was less than
half the price of cargoes from New Caledonia, the second-biggest
What has effectively happened is that the Philippines
initially replaced Indonesia in supplying nickel ores to top
buyer China, but now China is increasingly turning to low
quality Indonesian ferronickel.
This will have implications for the workings of Chinese
nickel pig iron producers, but overall it seems that China is
far from short of the metal used to make stainless steel and
other corrosion-resistant alloys.
A further sign of comfort in the Chinese nickel market is
that inventories monitored by the Shanghai Futures Exchange
SNI-TOTAL-D are still at relatively high levels.
In the week ended March 13 nickel stocks were 80,795 tonnes,
down from the peak in August last year of 111,359, but still
well above the 43,708 recorded at the start of 2016.
It's also possible that Indonesia will resume exports of
nickel ore after the government introduced new regulations that
allow miners to export some unprocessed ore if they are using
the capacity at their refineries.
While it's far from certain as to how much nickel ore
Indonesia may export, an official at the mines ministry
suggested last year it could be as much as 15 million tonnes in
2017, about a quarter of the amount the country shipped out in
2013, the year before the ban was imposed.
It's also about half of what the Philippines shipped to
China last year.
If Indonesia does increase exports of nickel ore, while
maintaining those of its low-grade ferronickel, the risk is that
the market will be oversupplied, irrespective or whether the
Philippines bans mining or not.
In some ways Indonesia and the Philippines have been playing
an unwitting game of political tag when it comes to nickel
markets, alternately tightening or boosting supply and altering
the form in which nickel reaches China.
But the nickel market has shown it can cope with the
inconsistent politics of Indonesia and the Philippines.
(Editing by Richard Pullin)