Nickel shriek turns to shrug as Philippines dithers on audit

Posted on May 03, 2017

NICKEL BULLS are in retreat as a mining crackdown that threatened to choke supply from the world’s top shipper is mired in legal and political limbo.

In 2016, prices of the metal used mostly to harden stainless steel surged the most in two years after the Philippine government said it would shut down mines blamed for water pollution and denuded forests as part of an environmental audit of about 300 open pits. But 10 months later, output is unchanged and prices are lower than before the first closures were ordered.

President Rodrigo R. Duterte now holds the fate of the miners in his hands. Citigroup, Inc. says most pits will keep operating, while consultant CRU Group says the market is now more focused on slowing demand from China because of a steel glut. And rival exporter Indonesia is making moves to resume shipments of the metal that’s also an ingredient in batteries, coins, magnets and guitar strings.

“It’s taken such a long time for the Philippines to make the final decision, and in the meantime the market has changed,” Peter Peng, a nickel analyst in CRU Group’s Beijing office said by phone. “If prices fall further some of the Philippines mines might have to close anyway.”

The market got a surprise back in July, when newly-appointed Environment Secretary Regina Paz L. Lopez announced a sweeping investigation of the industry. An avowed anti-mining crusader, Ms. Lopez ordered the closure of eight mines that month, and by the end of the year, nickel prices had surged almost 25%, touching a 16-month high of $12,145 a metric ton on the London Metal Exchange.

Then ... almost nothing happened. Ms. Lopez recommended 23 mines shut in February, but the owners all lodged appeals with the secretary and some asked Mr. Duterte directly to overrule her.

Mr. Duterte hasn’t indicated how or when he will decide. In March, he threatened to impose a total ban unless miners could explain environmental damage they have allegedly caused. And while he has vowed to make quick decisions on matters brought to his attention, Ms. Lopez has claimed that appeals already filed with the President’s office haven’t reached him yet.

And now the audit is being audited. An interagency council is due to start its own review of mining operations, including the nearly two dozen ordered shut by Ms. Lopez. The Mining Industry Coordinating Council will check whether the orders were carried out with due process, one of the mining companies’ chief complaints. It will take at least three months to complete, according to Finance Undersecretary Bayani Agabin.

As the Philippines dithers, supply dynamics are shifting elsewhere, reducing the impact that any eventual closures would have on the market. Indonesia in January announced a relaxation of its 2014 ban on nickel ore exports, which is what originally propelled the Philippines into the position of the world’s biggest shipper. China, the biggest consumer its top customer, more than doubled imports of Indonesian ferronickel in the first three months of the year.

Nickel traded on the London Metal Exchange has given up all its gains, dropping to $9,230 a metric ton last week, the lowest since before Ms. Lopez announced her audit, as the prospect of more Indonesia supply collides with signs of peaking demand from the Chinese steel sector.

“Mine supply dramas are being resolved,” Morgan Stanley analysts led by Tom Price wrote in a note dated April 24. “So for some price upside we’re still looking to the stainless steel world,” they said.

The price of benchmark stainless steel products has sunk more than 20% since peaking last December, according to data from Shanghai Steelhome E-Commerce. Morgan Stanley said there’s “trouble with demand” after the pullback in nickel prices triggered a new round of de-stocking while anti-dumping duties have weighed on China’s exports.

This isn’t the first time that hopes of nickel rallying on tighter supply have been dashed. Prices collapsed by 42% in 2015 in spite of Indonesia’s ban. It’s down 4.8% in 2017, at $9,540 a ton on Tuesday.

The metal would get a boost in the unlikely event that the nation still goes ahead with all the closures demanded by Ms. Lopez, Daniel Hynes, senior commodities strategist at Australia & New Zealand Banking Group said by phone. “The market would certainly still need to re-price based on a particularly tight market even with weaker demand growth.”

Ms. Lopez’ own future as environment secretary hangs in the balance. Her appointment is still waiting for confirmation by Congress after three previous hearings failed to reach a decision, and lawmakers are due to meet this week to continue deliberations.

She still remains determined to censure the miners and has now signed an order banning open-pit mining for new projects.

“Their money is not more important than people’s lives,” she told Bloomberg News on Thursday. “Let’s see what happens, but I’m doing my job.” -- Bloomberg