Commodities

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

A vigilantist politician who would be happy for all his country's mines to shut down and a populist president enforcing a ban on ore exports might not seem the most obvious allies for global nickel miners. Right now, though, commodity producers will take what they can get.

Even after putting in the third-best performance among the most-traded base metals so far this year, nickel is languishing at levels where more than half the industry is probably making a loss on every metric ton.

The Philippines, the world's biggest producer of the metal used in stainless steel, hopes to decide by the end of the month which pits will be allowed to remain open following an environmental audit ordered by President Rodrigo Duterte.

Rise and Fall
Most big nickel producers have pretty consistent output levels. Southeast Asia is different
Source: U.S. Geological Survey

If you're wondering why that potential hit to supply hasn't lifted prices over the past week, have a look what's going on next door.

Joko Widodo's government in Indonesia, which lost its status as the biggest producer after banning exports of unprocessed ores in 2014, is considering loosening those restrictions, the country's acting energy and minerals resources minister said Tuesday.

This jockeying between the two biggest swing producers is in stark contrast to Russia, Canada and Australia, which each churn out a consistent 250,000 metric tons or so of metal every year. And it makes life hell for the global industry.

Commodity businesses live and die on supply and demand. Investing means taking high-stakes bets on what the world will look like years into the future -- one of the reasons most big miners employ so many economists.

Generally, demand for raw materials can be assumed to grow at a predictable pace, perhaps accelerating or decelerating over the long term, but rarely making sharp reversals in the absence of major technological change.

Supply, on the other hand, is highly unpredictable. Weather, strikes, landslides, regulatory changes, the attitudes of investors and even the shape of underground deposits can make the amount of material the world produces swing drastically from year to year.

Feel Like Jumping
Nickel's 90-day volatility has long exceeded other base metals
Source: Bloomberg

That uncertainty can be glimpsed just looking at short-term prices. The 90-day volatility of nickel on the London Metal Exchange is well above that of copper or aluminum and even pips zinc, this year's best-performing base metal.

For miners, that unpredictability creates a major headache. Anyone who invested in new mines and processing plants in the hope of good prices when the metal surged above $50,000 a ton in 2007 would have been in trouble 18 months later when it slumped below $10,000. Less rash diggers who regarded the metal's subsequent six-year spell above $13,000 as a baseline would have squealed as it fell as low as $7,595 a ton this year.

Not So Stainless
Those days when nickel fetched $50,000 a ton seem very far away
Source: Bloomberg

What miners need above all else is a bit of certainty that would allow them to match their supply projections to demand a little more closely. It's hardly a surprise that Vale, the world's biggest nickel producer, wants no let up in Indonesia's ore-export ban, fearing a flood of supply will crunch down prices again.

Miners may balk at the restrictions Southeast Asian governments place on their industry, but they'd do well to temper their outrage. Further curtailment of exports from the Philippines and Indonesia would have a salutary effect on their income statements.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Crude is more jumpy, but the oil trade has an enormous secondary market of traders to take the risk away from producers -- something nickel mostly lacks.

To contact the author of this story:
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net