London 22/06/2016 - Market participants have largely downplayed talk that Philippine President-Elect Rodrigo Duterte could outlaw the mining of some nickel ores.
Duterte, who will take office on June 30, promised a "comprehensive review" of mining concessions in the country and warned he would cancel any projects causing environmental harm - a move that could affect the flow of raw material to China.
A ban would tighten further a market affected for several years by the Indonesian ban on exports of unprocessed ore, market participants noted.
"But it is debatable whether this will actually happen. It is still an ongoing procedure," one trader said. "They had these talks before. It is more of a case of people talking to prop up the prices but in the end nothing happens and I'm not so convinced this time will be any different.
According to the World Bureau of Metal Statistics, the Philippines is the world's largest nickel ore producer and China's main supplier, having previously been responsible for less than half of China's nickel ore imports before the slump in Indonesian exports.
Concerns over the Philippines mining industry deepened this week after Gina Lopez was named head of the Department of Environment and Natural Resources. She has heavily criticised the mining industry in the past.
"[But] although the attitude of the new head of mining industry does not seem too favourable, it is still not clear what her actions will be," a mining source in the Philippines said.
"We still need more time to see what will happen to our mining industry. It's still too early to assess any potential impact on the nickel market the new leadership might have," he added.
Still, if nickel supply is disrupted by restrictions on mining, more refined nickel may be drawn down from visible inventories, which could support strong pricing, market participants noted.
Three-month nickel on the LME reached a fresh six-week high this week of $9,315.
Demand for the metal is seen outweighing supply this year. According to INSG figures, the global nickel market recorded a deficit of 10,1000 tonnes in April, bringing the market to a deficit of 7,100 tonnes in January-April 2016 compared with a surplus of 19,100 tonnes in the first four months of last year.
The INSG sees a larger 2016 deficit of 49,000 tonnes compared with 23,000 tonnes at its October 2015 meeting. It revised downward its forecast surplus for 2015 to 15,300 tonnes from 29,000 tonnes.
Meanwhile, China's nickel ore imports from the Philippines in May fell 6.8 percent from the same month last year to 3 million tonnes.
Lower imports so far this year reflect slower demand from Chinese NPI producers, heavy rains in parts of country and possible production cuts among Philippine miners, market participants said.
But exports from the Philippines have increased on a month-on-month basis - shipments picked up at the end of monsoon season, they noted.
The Philippine Nickel Miners Association, which accounts for 60 percent of domestic nickel ore production, agreed earlier this year to reduce ore output by as much as 20 percent over 2015 volumes.
But it remains to be seen if the pledge will be adhered for the rest of the year, analysts said.
(Additional reporting by Vivian Teo, editing by Mark Shaw)