Philippine nickel ore exports may drop 30%, top miner forecasts

[MANILA] Shipments of nickel ore from the Philippines may shrink by as much as 30 per cent this year as the world's top supplier cracks down on errant miners and after some companies cut output in the first half due to weak prices and poor weather, according to the head of one of the biggest producers.

Volumes are expected to drop at least 20 per cent compared with a year earlier, Dante Bravo, president and chief executive officer of Global Ferronickel Holdings Inc said in an interview. The suspension of mines during an audit initiated by new President Rodrigo Duterte means that more than 100,000 metric tons of contained nickel production have been lost, Mr Bravo said, citing a company estimate.

"This audit is a follow-through of what President Duterte said during the campaign, that he will take a look into mining," said Mr Bravo, adding that Global Ferronickel's operations had been assessed and "we have complied with everything."

While the latest audit applies the same rules as in earlier investigations of the industry, "what's changed is the person in charge and the approach in regulation and administration," he said.

The global nickel market is waiting for the full outcome of the examination amid concern that further mine suspensions may hurt supplies, potentially lifting prices that gained to a one-year high last month.

Environment Undersecretary Leo Jasareno told Bloomberg last week that the government expects to present the findings on Thursday. Most ore from the Philippines is shipped to China, the largest metals user, to make stainless steel.

In terms of output of contained nickel - the metal derived from nickel ore - Mr Bravo said the Philippines had been forecast to produce 378,000 tons this year, down from 420,000 tons in 2015. Losing another 100,000 tons due to mine suspensions would leave production at two-thirds of last year's levels.

"The audit is good as the compliant companies will be identified and will help clear the perception or conclusion that the mining industry is bad," Mr Bravo said on Sept 1.

Those who stand to gain "are those who will be left standing. Those who are not compliant will be suspended, won't be able to sell and will miss out." The Philippines accounts for about 20 per cent of global mined nickel supply.

Last year, ore shipments were 32.3 million tons, down from 33.1 million tons in 2014, according to mines bureau figures. Mr Bravo's outlook suggests that in 2016 the country may export between 22.6 million and 25.8 million tons. Ore differs by grades and only a fraction of each ton can be converted into metal.

So far eight nickel operations have been suspended in the audit and under an earlier examination by the previous administration, according to Mr Jasareno. The government wants to ensure that all miners operate responsibly, and those breaching environment rules will be suspended, he said.

Nickel closed at US$10,060 a metric ton on the London Metal Exchange last week, 14 per cent higher in 2016. The metal peaked on Aug 10 at US$11,030 before giving up some of its gains as concern about the Philippine audit eased, with Citigroup Inc saying the checkup has had only a modest effect.

Global Ferronickel operates the Cagdianao mines in Surigao province in the south. After producing 5.4 million tons last year, it's likely to miss this year's target of 5 million tons after unfavourable weather and low prices in the first half, according to Mr Bravo. The shares are 23 per cent higher this year in Manila.

"We will miss our target because of the weather and low nickel prices at the start of the year," said Mr Bravo. "Shipments of the industry will be more than 20 per cent down and this could go up to 30 per cent," he said, adding that prices in China had risen amid concern about the impact of the audit.

Declines in nationwide ore supplies may come just as China's economy shows positive signs, aiding the demand outlook, according to Mr Bravo. China's official factory gauge unexpectedly rose in August, climbing to the highest level in two years, according to figures last week that helped boost metals prices.

"China's economy is stabilising and fixed-asset investment going up, particularly in the residential sector. Even the industrial production side is also going up," said Mr Bravo.

"We are still living in a metals age."

BLOOMBERG