Michael Defensor is racing to mine and ship nickel from projects across the Philippines to plug the gap in global supplies left by Indonesia’s ore-export curbs.
“Indonesia’s ban affected us positively,” said Defensor, chairman of Pax Libera Mining Inc. and the nation’s environment secretary from 2004 to 2006. He’s preparing four new sites for next year after opening two in the past two years. “We will maximize this window and ship as much as we can.”
The Indonesian curbs, designed to promote local processing, started in January and were upheld in court this month. The ban initially drove prices to a two-year high in May, before larger-than expected Philippine exports and slowing Chinese growth reversed the rally. Citigroup Inc. says it’s still bullish on nickel because the country won’t be able to expand supply much more and a global shortage will emerge.
Futures on the London Metal Exchange, the global benchmark for the metal used to make stainless steel, traded at $15,750 a metric ton today, from this year’s high of $21,625 in May. The price is still 13 percent higher for the year, making nickel the best performing industrial metal on the LME.
“Everyone will try to max out their permit,” said Ramon Adviento, a mining analyst at Maybank ATR Kim Eng Securities in Manila. “The low-hanging fruit has already been harvested even before the ban, so there is probability that the Philippines won’t meet the gap” left by Indonesia, he said.
While ore exports from the Philippines to China rose 24 percent to 31.2 million tons in the first 10 months, some of that came from stockpiles, Citigroup analysts wrote in a Dec. 1 report. Volumes probably won’t expand much in 2015 even with more mining, they said. Ore from the Philippines typically has less nickel content than from Indonesia, which was the world’s largest mined producer before the ban.
The global market will swing to a deficit of 62,400 tons in 2015 from a 25,100-ton surplus in 2014, according to Citigroup, which expects prices to average $21,625 next year and $25,250 in 2016. Goldman Sachs Group Inc. has a 2015 forecast of $17,500, rising to $20,000 in 2016, and Morgan Stanley listed nickel this month as its top metals pick for 2015.
The forecasts for supply shortages contrast with gains in global inventories. Those tracked by the LME surged to a record this year, expanding 55 percent to 406,812 tons by Dec. 19.
Economic growth in China, the biggest buyer of ore from Southeast Asia and the largest nickel user, is slowing to the weakest since 1990.
The Philippines undermined the bullish outlook for nickel, shipping more ore than expected, Credit Suisse Group AG analysts said in a Dec. 15 report. They cut their 2015 forecast by 21 percent to $17,625, citing in part the “mighty influx” of metal into LME-monitored warehouses.
Nickel Asia Corp. (NIKL), the Philippines’s biggest producer, is among those gaining from the ban. Ore sales rose 38 percent in the first nine months, boosting profit more than fourfold to a record. Shares of the company have tripled this year as the Philippine Stock Exchange Index climbed 21 percent.
More companies are seeking permits, said Leo Jasareno, director of the Manila-based Mines & Geosciences Bureau. The office authorized two more nickel mines this year, including one for TVI Pacific Inc. pending for about 15 years, he said.
“If Indonesia’s ban goes on we’ll see more new mines in five years,” Jasareno said. “Nickel will be the darling of mining in the next 10 years.”
Each of the four new mines may produce about 2 million tons of ore a year, Defensor said. Its Tawi Tawi project in the Mindanao region may provide as much as 3 million tons, he said. It can operate year-round, whereas mines in some other areas have to halt for months during the annual rainy season.
“Ore is in demand and there are many aggressive buyers,” said Defensor. “We’ll keep the machine efficient, so when the ban ends and prices correct, we can still operate.”