London 21/07/2016 - Nickel traders see a limited impact on China from current and potential supply-side disruptions in the Philippines mainly because of signs of weak demand, high domestic stocks and the ready availability of replacement material.
"Everybody is talking about the Philippines but they forget weakened demand from Chinese [stainless steel] mills," a local trading source noted.
The focus should return to Chinese demand side, which has showed some signs of weakness recently, nickel traders largely agree.
Several stainless mills including Delong, a big player in China, have recently been shuttered for falling short of the country's environmental standards, trading sources claimed.
"For those mills I contacted directly, their operating rates have dropped in June and July," a second trader said, adding that summer is a traditional off-peak demand season for stainless steel.
Still, steel analysts and producers in China claimed late last month that that stainless steel output was better than anticipated.
"Demand is better than expected and much better than last year but it's down from the peak seen earlier this year," a third trader noted.
Earlier in May, most market participants had thought the surprisingly strong first-quarter demand for nickel from China's stainless steel sector was 'probably unsustainable' given the perception that credit was the main driver rather than genuine end-user consumption.
"The decline [in demand] is not a temporary or seasonal thing - it's becoming a normal state now," the first trader said.
And it will take long time to consume high nickel stocks - visible and invisible - in China at the current rate, trading sources claimed.
China imported 35.28 million tonnes of nickel ore and concentrates in 2015. Of that total, 34.28 million tonnes were from the Philippines - the latter became the top supplier to the world's biggest consumer of the metal after Indonesia - previously its main supplier - banned exports of unprocessed minerals in 2014.
"It's an over-hyped story [on the Philippines] - I haven’t felt any major impact on supply and bilateral trade so far," a fourth trader in China said. "For laterites, it's not difficult to find replacements supply from New Caledonia and other regions."
In April, New Caledonia approved the export of up to 700,000 tonnes of low-grade nickel laterite ore to China over a period of 12-18 months, ending a long-standing ban on selling ore directly to large consumers to protect its domestic smelting and refining industry.
The LME three-month nickel price was last at $10,695, having peaked at $10,730 earlier on Thursday - the highest since October 12 last year.
(Additional reporting by Vivian Teo, editing by Mark Shaw)