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.

Whatever happened to the storm that was meant to shake the global nickel market?

The perennially unprofitable stainless steel alloy broke out of a two-year slump in 2016, touching a 16-month high in November after Philippine President Rodrigo Duterte appointed a stern critic of mining to oversee the industry.

Prices were at it again Thursday, reaching a three-week high after the cabinet secretary, Gina Lopez, announced that 23 mines would be closed and five suspended.

Still, looked at in the long term you'd be hard-pressed to see how nickel has benefited from the supply crackdown. Since Duterte took office June 30, the London Metal Exchange's LMEX index of six key base metals is up almost 18 percent. Nickel has risen 1.2 percent, by far the worst performer of the bunch.

Nickel and Dimed
It's been the worst performer of the major base metals since the Philippine election in 2016
Source: Bloomberg
Note: Prices are for three-month LME forwards. Rebased: June 30, 2016 = 100.

Blame events on the other side of the Sulu Sea for that situation. Indonesia, which helped kick-start the Philippines' nickel boom at the start of 2014 by banning exports of unprocessed ores, loosened the restrictions last month in a move that could wipe out the supply deficit brought about by Duterte's and Lopez's policies.

Metal Mountain
Nickel's brief deficit is going to disappear next year. That's bad news for prices
Source: Bloomberg Intelligence
Note: Rebased. June 30, 2016=100.

A look back over the last decade of production illustrates the problem. The two countries together produced about 700,000 metric tons of nickel a year in 2014 and 2015, according to the U.S. Geological Survey, with about 170,000 tons coming from Indonesia.

Should the Philippines shut down half of its nickel supply, that would reduce the combined total to about 435,000 tons -- but if Indonesia returned to the 400,000 tons-a-year output levels seen before the 2014 export ban, we're back up to about 700,000 tons again. Net-net, supply from Southeast Asia won't have changed.

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

This sort of policy chaos ought to be somewhat bullish for prices in the very long term, since it should deter investment in new projects and set up the potential for future supply shortages. But we're a long way from that at the moment.

Last year's 209,000-ton supply deficit will narrow to 188,000 tons this year, before heading to outright surpluses of at least that magnitude in the three subsequent years, according to the Bloomberg Intelligence nickel supply model. Refined nickel production will rise by one-quarter next year, while demand will climb just 3 percent, according to the model.

Regardless of what Duterte and his Indonesian counterpart Joko Widodo do, those hoping that nickel has a long way to rise from its current levels of $10,065 a ton could be in for a long wait.

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

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

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net