(Repeats column that ran on Friday, with no changes)
By Andy Home
LONDON, Feb 24 Is the Philippines' draconian
mining clampdown already affecting the flow of nickel ore to
China's nickel pig iron (NPI) producers?
It certainly looks that way.
Exports of ore to China always drop at this time of year due
to the rainy season, which affects both mining and shipping.
But China's trade figures for January showed imports of
Philippine nickel ore were still 20 percent lower than last
year's level. And the betting is that they will continue
trending lower after the Philippines' feisty environmental
minister, Regina Lopez, ordered the closure of over half the
country's mines, many of them nickel operations.
Nickel bulls, however, should be wary.
China's import picture is also one of growing
diversification of supply, not least from Indonesia, the other
political wild-card in the nickel supply chain.
Graphic on the seasonality of Philippines nickel ore
THE POLITICS OF ORE
China's imports of ore from the Philippines were 779,000
tonnes last month, the lowest January reading since 2012, when
the country was still a second-tier supplier after Indonesia.
All that changed when Indonesia enacted its ban on the
export of unprocessed minerals, including nickel ore, at the
start of 2014.
The Philippines stepped into the gap left by Indonesia and
has since become China's dominant nickel ore supplier.
Hence the market excitement when Lopez lived up to her
previous eco-warrior credentials and ordered the closure of 23
mines and the suspension of five others, putting at risk close
to 9 percent of global nickel supply.
The political storm is still raging in the Philippines
itself but January's low imports may well be the first sign of
what to expect going forwards.
So too, though, might be the fact that China's overall
nickel raw materials imports were still up by 4 percent in
January despite that sharp drop in Philippine supply.
And key to that pick-up was the apparent resumption of
imports from Indonesia. China bought 123,300 tonnes from
Indonesia in January, the highest monthly tally since April
2014, when Indonesian exports were winding down after the
implementation of the export ban.
Indonesia has this year generated its own nickel supply
shock by saying it will partly relax its ban on nickel ore
exports, albeit with a series of complex caveats.
Has someone already started shipping ore? It seems
unfeasibly fast given the government only announced its revised
policy last month. And there have been occasions in the past
when China's customs department misclassified iron ore with high
nickel content as nickel ore.
However, this particular component of China's nickel import
picture will bear close scrutiny in the months ahead as the
market tries to calculate the net impact of less ore from the
Philippines and more from Indonesia.
The broader trend in China's nickel raw material imports,
however, is one of diversification in terms of both geography
New Caledonia, in particular, has emerged as a new ore
supplier to China.
Imports totalled 492,000 tonnes last year, compared with
zero in 2015, and another 108,000 tonnes entered China last
month, the highest monthly total since 2007.
The supply uncertainty generated by the Philippines and
Indonesia has been something of a blessing for New Caledonian
producers, who were left reeling by last year's closure of their
main customer, Australia's Queensland Nickel.
The New Caledonian government authorised the export of
700,000 tonnes last year and has upped the quota this year,
albeit with the slightly curious stipulation that ore can't be
sold to Chinese NPI producers.
But whoever's buying the stuff, it's clearly entering China
and in increasing quantities.
The second major trend at work in terms of China's nickel
supply is the amount of nickel pig iron that is now coming
directly from Indonesia.
This reflects the build-out of processing capacity, led by
Chinese players, in the country. This, after all, was the
intended political aim of the 2014 ban in the first place.
Confusingly, this Indonesian material is lumped into the
"ferronickel" category by Chinese customs, but the give-away is
its relatively low value. The average import price in January
was $1,512 per tonne, compared with $3,000-4,000 per tonne for
suppliers from other countries.
Imports of "ferronickel" from Indonesia mushroomed to
747,000 tonnes last year from 214,000 tonnes in 2015. And the
trend is continuing to accelerate with January's imports of
88,135 tonnes the second highest monthly total on record and
more than double last year's figure.
There's one more detail in the January trade picture that
should give nickel bulls food for thought.
Imports of ferronickel from the Dominican Republic totalled
780 tonnes in January.
The Caribbean country only emerged as a supplier to China in
the second half of last year. Actually, that should read
"re-emerged" since it was once a steady exporter.
But Glencore placed its Falcondo nickel operations on care
and maintenance towards the end of 2013. It was one of only a
handful of price-related closures in a supply chain that has
been found to be stubbornly price inelastic even while
Glencore sold Falcondo to a private company called American
Nickel Ltd in 2015 and the inference from the Chinese trade
figures is that some production at the 30,000-tonne year
operations has resumed.
If it has restarted, it will represent another piece in
China's increasingly diverse nickel supply chain.
The country's resilience to politically motivated supply
shocks should not be underestimated. It weathered the Indonesian
ban and looks to be positioning itself to mitigate the impact of
the Philippines' mines closures.
If the country were really short of nickel raw materials, a
sure sign would be a squeeze on refined metal.
But there are over 89,000 tonnes of nickel sitting in
warehouses registered with the Shanghai Futures Exchange.
And China's net refined nickel imports in January of 11,892
tonnes were the lowest monthly tally since April 2015.
There are many moving parts to this nickel supply story, but
for now at least China is not running short of units - whatever
form they may take.
(Editing by Susan Fenton)