(The opinions expressed here are those of the author, a columnist for Reuters.)
By Clyde Russell
LAUNCESTON, Australia, Oct 4 (Reuters) - It’s not often that jobs get exported from the developing world back to a developed country, but this is likely to be the case with nickel, the Philippines and Australia.
The new Philippine government of President Rodrigo Duterte has roiled global nickel markets by suspending 10 nickel mines and threatening the closure of at least 12 more, citing environmental violations.
The suspended mines and those at risk represent nearly 60 percent of output in the Philippines, the world’s largest producer of nickel ore and top supplier to top buyer China.
It’s no surprise that the uncertainty surrounding the Philippines’ nickel output has led to a surge in prices, with benchmark London futures rising 18.5 percent from the end of last year to Monday’s close of $10,350 a tonne.
But while the global market for nickel is undoubtedly tighter than it was, the recent rally from February’s 13-year low will serve to boost supply over the longer term.
An example of this is plans to reopen the Avebury mine in Tasmania, Australia’s island state, that was mothballed in 2009 after nickel prices collapsed in the wake of the 2008 global recession.
The mine’s owners, Melbourne-based copper and zinc miner MMG , has agreed to sell Avebury to a private company, Dundas Mining, which plans to restart operations next year.
Prior to being placed on care-and-maintenance Avebury was capable of producing 8,500 tonnes a year of nickel concentrate, and this could be increased to around 15,000 tonnes if mining operations are expanded.
This makes Avebury a small player in the global nickel stakes, but the point is that it’s unlikely it is the only mine that may return to being viable if the nickel price has indeed bottomed and is now on a sustainable recovery path.
If the mine does reopen, it will also be an unusual reversal of job flows between the developing and developed world.
In recent years, Tasmania, in common with the rest of Australia and other developed nations, has tended to lose manufacturing and other semi-skilled jobs to developing nations that can offer lower taxes and cheaper labour forces.
A recent example in Tasmania was the relocation of part of a heavy mine equipment factory owned by Caterpillar Inc from the town of Burnie to Thailand in 2015, with a reported loss of 280 jobs.
The suspension of nickel mines in the Philippines is perhaps unusual insofar as it shows a developing nation being prepared to sacrifice employment in pursuit of better environmental outcomes.
While there has been some softening of the recent rhetoric by Philippine Environment and Natural Resources Secretary Regina Lopez, it’s still clear that she intends to ensure miners are more aware of their environmental responsibilities.
The broader question is will the current question mark over nickel output in the Philippines, which supplies about a quarter of the world’s mined nickel supply, be enough to drive a rally in prices that will tempt investment in bringing back supply, as at Avebury, or lead to new deposits being developed?
It’s worth noting that while nickel has performed strongly this year, it’s still barely a fifth of its record high of $51,800 a tonne, reached in May 2007.
While this does imply plenty of headroom for a sustained rally, it also implies that sustained tightness is needed in the market, meaning that new supply shouldn’t arrive too quickly or it will risk stifling the recovery.
It’s here where the risks lie, as Indonesia, the former top supplier of nickel ore, is considering relaxing a 2014 ban on the export of raw minerals, in what would be a major policy flip.
It’s not clear why the government would reverse the ban, given that Indonesia has had success in encouraging increased downstream processing of mineral ores, as can be seen by the massive surge its in its exports of ferronickel to China.
Ferronickel is an intermediate stage product between ore and refined metal, and China imported 450,874 tonnes of the product in the first eight months of the year, a jump of 301 percent over the same period last year.
At the same time, China’s imports of nickel ore and concentrates from the Philippines fell 21.3 percent in the first eight months of year to 17.99 million tonnes.
It’s also possible that the Philippines will impose a ban on nickel ore exports, travelling down the same path that Indonesia is now contemplating leaving.
It appears the only certainty for nickel currently is uncertainty, which may serve to keep prices up while making any investment decisions from smelters in Indonesia to small mines in Tasmania a brave call. (Editing by Richard Pullin)