London 14/07/2016 - China's nickel pig iron (NPI) producers, which are already struggling to maintain output due to a growing scarcity of raw materials, face the worrying prospect of a prolonged or permanent reduction in the availability of ore from the Philippines.
Having reportedly run down supplies of stockpiles of Indonesian ore after that country introduced an export ban ores at the start of 2014, NPI mills in China also face the threat of a crackdown on Filipino supply from the country's new regime.
Its new environmental minister, Regina Lopez, has said the government will look to shutter any operations that do not meet environmental regulations.
The Philippines is auditing all operating mines in the country while suspending the approval of new mining projects with immediate effect.
Operations at BenguetCorp Nickel Mines and Zambales Diversified Metals - with capacity of 20,000-25,000 tonnes per year - have already been suspended while their environmental impact is reviewed.
On Monday, the country shuttered its third operation - Berong Nickel Corp's Palawan mine in the Southwest.
Another 300,000 tonnes per year or 15 percent of global supply are exposed to the new regime's mining policy in the Philippines, Morgan Stanley said in a research note.
The Philippines produced around 450,000 tonnes of recoverable nickel ore last year, around 23 percent of global output, much of which feeds China's NPI mills, Macquarie estimates.
This figure includes both higher-grade 1.5 percent nickel ores and, more recently, the medium-grade 1.35-1.4 percent ores that Chinese producers have increasingly accepted to keep up production.
"Up to 2014, Chinese NPI producers had little reliance on the Philippines except for low-grade ores for their blast furnace nickel pig iron production," Macquarie said in a report.
But while NPI production has fallen by almost 200,000 tonnes from peak levels - around 10 percent of total global supply - ore requirements from China to maintain supply have also fallen, Bank of America Merrill Lynch said in a report on Monday
While Macquarie also predicts an increase in Indonesian NPI over the longer term, in the short term NPI in China is already at premiums of $100-150 per tonne on the LME nickel price. Tight scrap and NPI supply has also lifted premiums of products with higher nickel content such as ferro-nickel to as high as $300.
According to ISO standards, ferro-nickel must contain a minimum of 15 percent nickel content; NPI traditionally ranges from six percent up to 15 percent.
NPI was invented in China as a cheap alternative to the more expensive pure nickel cathodes in the production of stainless steel. Chinese NPI is mainly used in 200 series stainless steel, a low nickel, non-magnetic and cheaper alternative to the more widely used 300 series that requires higher percentages of nickel.
200 series nickel has nickel content of 1-4 percent nickel compared with closer to 8 percent in 300 series although the latter remains the most widely used in the domestic Chinese market and globally.
(Additional reporting by Vivian Teo, editing by Mark Shaw)