Biggest Nickel Producer Can’t Mine Enough to Satisfy China

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The Philippines will fail to satisfy China’s nickel ore demand and that may push up refined metal prices more than 15 percent, according to the largest miner in the world’s top producer.

The Southeast Asian nation won’t be able to supply enough ore once China exhausts stockpiles built up before last year’s export ban by Indonesia, previously the biggest producer, said Manny Samson, chief financial officer of Nickel Asia Corp. China’s output of nickel pig iron, a lower-grade substitute for the refined metal used to make stainless steel, may fall by about 30 percent when the country becomes solely dependent on Philippine supply, according to Samson.

“NPI producers would be completely reliant on Philippine ore” after stockpiles of Indonesia ore run out, Samson said. “Chinese stainless steel producers will now have to source nickel elsewhere.”

The tightening supply may drive prices to $16,000 a metric ton on the London Metal Exchange, Samson said. Nickel for delivery in three months on the LME rose 2.8 percent to $13,790 a ton at 10:08 a.m. in London. The metal slumped 34 percent since May 2014, when it hit the highest in more than two years.

While the Philippines raised output after Indonesia’s export ban started in January 2014, Chinese imports still fell 33 percent last year to the lowest since 2010. Inbound shipments in the first three months of the year are also at the least in five years.

‘Strong Catalyst’

“Any time between the third and fourth quarter, we’ll see the stockpiles being fully depleted,” Samson said in a telephone interview on April 28. “That would be a strong catalyst for prices to recover.”

China’s inventories of laterite ore, the type shipped from Indonesia, fell to equivalent of about 120,000 tons of pure nickel at the end of March from about 194,000 tons at the start of 2014, Celia Wang, an analyst at Beijing Antaike Information Development Co., said April 24. Current stockpiles of nickel ore, refined nickel and ferro-nickel can cover three months of the country’s stainless steel production, according to Antaike.

While the Philippines in 2015 can export close to last year’s record 43 million tons to China, the raw material will only be enough to make as much as 350,000 tons of NPI, down from about 485,000 before the Indonesia ban, Samson said. Antaike forecast Chinese NPI output at 360,000 tons this year.

Stainless Steel

Prices may also find support from growing demand. China’s stainless steel production, which accounts for 85 percent of the nation’s nickel consumption, will expand in the second half of the year after contracting in the first quarter, resulting in its nickel demand expanding 3 percent in 2015, Standard Chartered Plc said in a report dated April 28. The banks sees prices averaging $17,500 a ton next year.

Indonesia’s ore exports to China tumbled to 10.6 million tons in 2014 from 41.1 million tons the previous year, Chinese customs data show. The Philippines replaced Indonesia as the world’s largest producer of nickel ore last year and accounted for 98 percent of China’s imports in March, according to Bloomberg calculations based on customs data.

The metal’s global deficit will deepen to 70,000 tons in 2016 from 33,000 tons this year, Standard Chartered said in the April 28 report. Stockpiles monitored by the LME have gained 61 percent in the last 12 months to a record 444,756 tons, bourse data showed Thursday.

Nickel Asia will raise its sales this year to China by 6 percent to about 9 million tons of ore, mainly of low- and medium- grade materials containing a maximum 1.5 percent nickel per ton, Samson said. The Makati-based company accounts for about 20 percent of the Philippines’ nickel-ore exports to China, he said.

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