News that the Philippines was preparing to follow Indonesia in banning exports of unprocessed minerals caused panic in the London nickel market.
The Philippines has emerged as the main supplier of nickel ore to China’s massive nickel pig iron (NPI) sector after the cessation of exports from Indonesia. But reports emerged later said that any Philippines ban is several years away, Reuters reported.
On the London Metal Exchange (LME) benchmark three-month nickel collapsed by $1,000 per ton to $18,925 on Tuesday, wiping out the gains notched up over the previous days.
However, the market might be overly complacent about the apparently extended time-line before any Philippines ore ban, if it’s collectively assuming that events in that country will mirror those in Indonesia.
What is less in doubt is what the recent price roller coaster says about the bullish mindset in this market, particularly its responsiveness to supply-side news.
Cut in Supply
Ever since January, when Indonesia introduced a complete ban on exports of ore, nickel has outperformed all the other base metals traded on the LME.
Understandably so, since at the stroke of a presidential pen, Indonesia has cut off around a third of global nickel mine supply.
At risk are China’s many NPI producers, who have emerged as a major source of nickel supply for the country’s stainless steel sector, but with a critical dependency on Indonesian ore as their primary source of raw materials.
The Philippines has traditionally been the second-most important source of nickel ore for Chinese NPI producers, although the ore tends to be lower quality than that from Indonesia.
It is now the only source of ore and shipments have boomed in response to China’s appetite for replacement feed. China’s imports from the Philippines were a record 5.0 million tons in July with cumulative imports up 15 percent so far this year.
The consensus view is that ore from the Philippines will not fully replace that lost from Indonesia but increased shipments might well extend NPI operators’ life-line, particularly if they are blending it into their existing stocks.
This explains why the nickel price shot up when the news broke that Philippines lawmakers were contemplating legislation identical to that which cut off Indonesian nickel ore flows.
