Singapore 11/03/2016 - Chinese market participants have downplayed the effect of a possible cut of up to 20 percent in nickel ore production by Philippine miners due to slow demand in China.
The cut in Philippine nickel ore outout is essentially to match nickel metal and nickel pig iron (NPI) production cuts in China, Chinese sources argued.
"Nickel producers have cut production by 20 percent and the Philippine miners are just responding to that. There is no use producing more nickel ore if there is no demand for it," a Shanghai-based nickel analyst.
The Philippine Nickel Miners Association, which accounts for 60 percent of domestic nickel ore production, agreed to reduce ore output by as much as 20 percent over 2015 volumes, Reuters reported earlier this week.
Late in November last year, eight Chinese nickel metal and NPI producers, including Jinchuan Group, agreed to cut production by at least 20 percent this year, while another 10 large medium- and high-grade NPI producers said in December they will cut output by the same extent in 2016.
Production stoppages and cuts at Chinese NPI producers continue due to low nickel prices. Analysts estimate that Chinese NPI production could fall 14-20 percent year-on-year to 310,000-330,000 tonnes (nickel content) in 2016.
Other than weak demand, sources said Philippine miners are also under pressure to cut production while low nickel prices eat into their costs.
"Most mines cannot start mining operations at current nickel ore prices, which is now close to or even below breakeven levels," one Philippine miner source said.
A few Philippine miners are also under no pressure to sell at current low prices because they have enough cash, the source added.
The Philippines became China's largest source of nickel ore after Indonesia banned the export of unprocessed mineral resources in 2014. China imported 34.28 million tonnes of nickel ore from the Philippines last year, down 5.9 percent from 2014.
The London Metal Exchange nickel price fell more than 40 percent between May last year and mid-February this year. But since mid-February it has recovered by nearly 20 percent and was last at $8,810 per tonne on Tuesday, up $55 from Thursday's close.
(Additional reporting by Vicky Chen, editing by Mark Shaw)