Impact seen muted for nickel amid PHL review

July 19, 2016 at 12:30

Impact seen muted for nickel amid PHL review

Reuters | Posted on July 15, 2016

MANILA/LONDON — An environmental crackdown on Philippine mines, which helped drive nickel prices to eight-month highs, is likely to have only a muted impact on exports to China in the short term because the biggest mines have met guidelines, experts said.

The Philippines is the biggest exporter to top metals consumer China of nickel ore, used to make stainless steel.

A smattering of smaller mines are likely to be affected in coming months and new mines will probably face tough going in the future, but the review of the mining sector is not likely to result in a quick drop in shipments.

“The Chinese think the Philippines will continue exporting ore to China and only some small mines will be affected. They’re not worried about the situation at the moment,” said Peter Peng, analyst at CRU consultancy in Beijing.

The biggest Philippine producer, Nickel Asia Corp., which has already complied with international mining standards, accounted for close to 40% of Philippine nickel ore production last year, according to analyst David Wilson at Citi in London. Three other major miners also say they have approvals, while small-scale miners only accounted for about 11% of ore produced last year, he added. “We therefore suspect that the impact of environmental license suspension may be more limited than initially feared, and believe the recent rally will run out of steam,” he said in a note.

Of the 40 operating mines, 21 have obtained their ISO 14001 certification, said Ronald S. Recidoro, Legal & Policy vice-president of the Chamber of Mines of the Philippines.

Benchmark nickel prices on the London Metal Exchange have rallied a fifth to eight-month highs since June 4 when incoming President Rodrigo R. Duterte warned mining companies to “shape up”.

What remains unknown is how tough the mining minister, Regina Paz “Gina” L. Lopez, a committed environmentalist, will be in enforcing environmental and social responsibility rules. Days after she assumed office on June 30, a review of all mines was launched and two small mines were suspended.

Analyst Jim Lennon, a consultant for Macquarie, said politicians in the Philippines were responding to public anger at damaging practices in the small-scale mining sector. “Small miners are stripping away the overgrowth and the forestry and mining down 5-10 meters (yards), but don’t bother replacing the overburden and replanting,” Lennon said.

Philippine nickel ore exports to China were already down this year before the crackdown, due to low prices and as some mines ran out of ore. “Exports are down 25% in the first half anyway, because of the price and reserve exhaustion, so if any of the mines were to be shut down, there’s still plenty of capacity,” Mr. Lennon said. “So my feeling is that there will be more of an impact on new mines because I think there will be a much more extended environmental approval process.”

The Philippine government has halted permits to develop new mines since 2012 while it works out ways to get more revenue from the sector, but such efforts in Congress have stalled. — Reuters



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