New | Monsoon to disrupt China nickel imports from Philippines
Seasonal rains are set to disrupt nickel mining in the Philippines for the next four months or so, crimping exports to top buyer China and stoking a shortfall in the global supply of ore.
Miners in the Philippines say they will be able to fulfil their 2014 contracts as they have factored in the impact of the annual monsoon.
But with a ban on raw metal shipments by former top exporter Indonesia, the seasonal decline in the Philippines’ output could force China’s stainless steel industry to run down its stocks of nickel ore, reigniting a rally in nickel prices.
Most producers in the Philippines’ main nickel-mining region of Caraga are expected to close operations as normal from October or November until early next year in anticipation of heavy rains.
The Philippines has emerged as the top supplier to China’s producers of nickel pig iron, a key ingredient in stainless steel.
“[China nickel pig iron makers] are definitely going to be caught short,” said Daniel Hynes, analyst at ANZ in Sydney. “Obviously, they’ll just have to dig into their inventory to meet demand in the shorter term or look at importing some ferronickel from various sources.”
If producers decide to hoard the inventories, you could see nickel prices surge before the end of the year
Nickel laterite ore is found mostly in Indonesia, the Philippines and New Caledonia, and has been increasingly manufactured into nickel pig iron by stainless steel mills as a cut-price alternative to refined nickel.
Those firms have blended lower-grade ore from the Philippines with their remaining Indonesian stocks to stretch them out, although analysts say stockpiles may be depleted early next year.
Expectations that China’s stainless steel mills would run out of ore after Indonesia’s ban helped benchmark nickel prices surge more than 50 per cent by May. They have since cut gains to about 20 per cent for the year, standing at around US$16,550 a tonne.
“The Philippines has been exporting record volumes of nickel ore,” said Ivan Szpakowski, a commodities strategist for Citi. “Now you’re entering the monsoon season, exports should be falling off dramatically in the following weeks. Nickel pig iron producers will be running through these inventories.”
China’s imports of nickel ore from the Philippines jumped 26 per cent from January to August.
“If producers decide to hoard the inventories, you could see nickel prices surge before the end of the year,” Szpakowski added. Citi expects nickel to outperform prices for other metals, hitting US$26,000 a tonne in 12 months.
Mines in the Philippines’ southern Caraga region were bracing for heavy rains in the next four months, the country’s Mines and Geosciences Bureau said, including three operated by top producer and exporter Nickel Asia Corp.
The bureau’s data shows there are at least a dozen nickel mines in Caraga, and 10 of them had no output in the first quarter of this year. The country has a total of 27 nickel mines. Miners stressed that they had factored in the rainy season when setting production targets earlier in the year.
“Our mines in Surigao [in Caraga] adjust their schedules for the rainy season and make sure they’ve met their targets before the rains … require them to go into maintenance mode,” said Nickel Asia spokesman Jose Bayani Baylon.
Nickel Asia expects to ship 17 million wet tonnes this year, up 21 per cent from last year. The company said on Monday that its four operating mines sold a total of 14.26 million wet tonnes in January to September, up 38 per cent.
Unlisted Carrascal Nickel Corp, another Philippine ore supplier, confirmed it would halt production from this month and resume operations by March next year.
