Nickel Price, Production Grim as Miners Face Environmental Audit

Nickel mining in the Philippines looks dire due to a recent environmental audit.

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The Philippines is China’s biggest nickel supplier and mining in the country has taken a turn for the worse. With few alternative suppliers available, investors could be wringing their hands over nickel prices this year.

As the new president of the Philippines wraps up his environmental audit to get tough on irresponsible mining, production may become a problem for the world’s top nickel supplier. Already, the president has suspended 25 percent of the country’s nickel mines – and the fate for  remaining nickel companies will be announced on Thursday.

Already, the president has suspended 25 percent of the country’s nickel mines – and the fate for the remaining nickel companies will be announced on Thursday.

Tighter laws for nickel miners prompt shutdowns

President Rodrigo Duterte, who swept to power on June 30 with a vow to crush crime by targeting hundreds of suspected drug dealers, is using a similar method to conjure tighter environmental rules for nickel mining.

He’s tasked the environment and natural resources secretary, Regina Lopez, with completing the audit. From the beginning, she has publicly stated her dislike for mining. Her order effectively extends a department directive issued 2015 which gave miners until April to be ISO 14001-certified. The result of the first audit has not been released by the mines bureau.

This week, Duterte warned that nickel miners who didn’t follow tighter environmental rules would be shut down, adding that the country can survive without nickel exports. Lopez has said the audit may result in nickel mines being closed in the next six months, telling Reuters that none of the roughly 40 metals mines operating in the Philippines that she knew of practiced responsible mining.

Six out of 27 nickel mines were suspended in the first weeks of the audit, beginning in July. The suspension affected eight percent of total output in the initial round. On Thursday, a seventh nickel mine was added to the list.

Nickel Asia and Global Ferronickel Holdings, the nation’s top two producers, have said they operate according to the standards demanded by their new regulator. The Environment Department this month suspended two operations in Zambales province, north of the capital, for violations of mining and environmental law.

Nickel supply the largest in the world

Despite a wealth of untapped resources, only a few local nickel producers dominate the industry. There are even fewer foreign players, led by Australian miner OceanaGold Corp. (TSX/ASX:OGC) Mining contributed less than 1 percent to the Philippine economy last year.

The Philippines is the world’s biggest for nickel exports, and supplies almost all of the material imported by China (95 percent) to make stainless steel. Last year, the Philippines shipped 34 million metric tons.

Goldman Sachs Group said in their July 11 report that that approximately a quarter of existing nickel supply will be lost from the market for the next six months.  

 

Nickel production to rise in Indonesia

As a result of the environmental audit, nickel supply from Indonesia is set to surge in 2017 as companies ramp up output of processed metal. Additional nickel exports from Indonesia may help to plug a global shortfall.

Indonesia barred raw ore shipments in 2014 from compelling investment in value-added operations, paving the way for the expansion of the Philippine industry that’s now under threat. Nickel mining companies could get an exemption from the ban if they processed ore within Indonesia’s borders, but had to take a hit with a 20 percent export tax.

Nickel output will most likely rise to 363,000 tons in 2017 to 160,000 metric tons of contained metal from 217,500 in 2016.

Nickel prices may skyrocket

As Philippine policy makers raised the prospect of further mine suspensions and global nickel stockpiles receded, Prices surged for nickel. While global stocks are high, a suspension or closure of more mines could drive refined nickel prices up further, prompting investors to diversify their interests.

Just last month, nickel prices went up 13 percent and futures traded 0.3 percent higher at $10,180 a ton on the London Metal Exchange. To date, nickel pricing has jumped 15 percent this year.

Goldman Sachs forecasted that the nickel price on the London Metal Exchange will rise to $12,000 a metric ton in six months.

“If the Philippines does shut its mining industry, the fact that you’ve got high stocks simply won’t matter, the market will simply skyrocket,” said Wood Mackenzie analyst Andrew Mitchell.

Nickel touched an 11-month high of $10,900 on July 21, and has stayed well above $10,000 since.

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Securities Disclosure: I, Sarah Jamieson, hold no direct investment interest in any company mentioned in this article.

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