Singapore 23/06/2016 - The latest rhetoric from the Philippines has boosted sentiment in the nickel market but there is likely to be little effect on ore supply from the country, market participants said.
Philippine President-Elect Rodrigo Duterte, who will take office on June 30, had promised a "comprehensive review" of mining concessions in the country and warned he would cancel any projects causing environmental harm.
The appointment of environmentalist Regina Lopez to the country’s Department of Environment and Natural Resources this week sent Philippine mining stocks falling. And earlier this week, the Philippine Supreme Court issued environmental protection orders against five mining firms in the Zambales province allowing the court to decide if it would suspend production at the firms.
The developments in the Philippines are having a psychological effect on the market, supporting prices this week, industry watchers said.
The three-month nickel contract on the London Metal Exchange hit a new near-seven-week high of $9,315 per tonne on Tuesday while the most active nickel contract on the Shanghai Futures Exchange also touched a fresh seven-week high of 73,400 yuan per tonne on the same day.
"The buying we have seen [in nickel] may be encouraged by more rhetoric from the Philippines' imminent crackdown on 'dirty' miners, which would cut exports of ore from the country," Triland Metals in a note late on Wednesday.
But there are unlikely to be any significant effect on fundamentals in the near term, observers said.
"The effect is psychological. There is no effect on supply," a Shanghai-based nickel analyst said. The firms that were served the environmental orders were either producing very little or had stopped production due to the rainy season, he noted.
The Philippines authorities could get tougher on mining firms on environmental standards, though, which could continue to provide some support to nickel prices, he added.
Still, most in the market have downplayed any possible disruptions in nickel ore mining in the Philippines, with some seeing the latest rhetoric as largely political.
Many also feel that an outright ban on ore exports is unlikely any time soon given the time needed to enact such a law. It would also prove difficult to attract investors to build downstream processing facilities should a ban be implemented given that Indonesian nickel ore are mostly mid- and low-grade. Indonesia, in contrast, has high-grade nickel ore.
A Beijing-based nickel analyst also noted the lack of tightness in nickel ore supply in China because many domestic nickel pig iron (NPI) producers have cut or stopped production. Chinese NPI output is expected to fall around eight percent this year to 350,000 tonnes, he estimated.
The Philippines became China's largest supplier of nickel ore after Indonesia banned the export of unprocessed ore in 2014.
Chinese imports of nickel ore and concentrates from the Philippines fell 27.5 percent year-on-year to 7.16 million tonnes in the first five months of 2016. This reflected slower demand from Chinese NPI producers, heavy rains in parts of the Philippines that hampered shipments and production cuts among Philippine miners.
(Additional reporting by Ewa Manthey, editing by Mark Shaw)