Philippines flips the pig nickel finger at China

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Philippine President Rodrigo Duterte has warned that he will cancel mining projects that are causing environmental harm. (AP Photo/Aaron Favila, File)

We are now seeing the first repercussions of the fact that the disputes between China and the Philippines extend beyond the South China Sea — the nickel price is on the rise following nickel mine shutdowns ordered by the Philippine government.

Last night, nickel edged up to a one-year peak of $US4.81 a pound. While last night’s price is a far cry from the heady days when nickel was above $US10 a pound, it still represents a rise of almost 15 per cent from the $US4.20-a-pound level where nickel traded just a month ago.

While the outlook for all the base metals is improving, the shut down of key nickel mines in the Philippines has given a real boost to the nickel market at the expense of China.

The fact that the Philippine government’s shut down orders came a few days before the International Court of Justice ruled in favour of the Philippines over China in their South China Sea dispute is not lost on the nickel market, although, naturally, everyone may deny a connection.

Nevertheless, this is the first of many trade issues that will arise in the South China Sea, which, we should not forget, is the main route used by Japan to gain supplies.

To understand the importance of the Philippine government’s crackdown on nickel ore production we need to go back into the history of the development of pig nickel, which I outlined earlier this year when explaining the source of the woes hitting Clive Palmer’s Townsville nickel refinery (Townsville’s problem is pig nickel not Clive Palmer, April 20).

Nickel was once a boom metal but the Chinese stopped the nickel boom via a product called pig nickel. Pig nickel contains cobalt, zinc, copper etc. but it is good enough to make the stainless steel used in a lot of buildings and handrails plus low-grade kitchen and bathroom equipment.

However, pig nickel is not an acceptable substitute for the stainless steel used in chemical plants, oil refineries and nuclear power plants.

China initially produced pig nickel from nickel ore imported from Indonesia. So, although the production process was cheap and dirty, when the nickel price increased, the Chinese cranked up their pig nickel blast furnaces.

But in 2014, Indonesia stopped exporting nickel lateritic ore, demanding instead that its nickel be turned into metal in Indonesia. The price of nickel boomed as pig nickel plants in China were forced to slash production due to insufficient ore supply.

But then China began sourcing its nickel ore from the Philippines and the nickel price slumped once more as pig nickel hit the market again.

In May, voters in the Philippines elected Rodrigo Duterte President. Duterte went on to appoint Regina Lopez, a staunch environmentalist, as mining minister.

Earlier this month, she ordered the suspension of operations at two nickel ore mines for environmental violations and halted the issuance of exploration permits while she undertook a review of all existing mines as part of a nationwide crackdown on bad mining practices.

The two nickel mines that were suspended were operated by BenguetCorp Nickel Mines Inc and Zambales Diversified Metals Corp,.

Of around 40 metals mines operating in the Philippines, Minister Lopez told Reuters she didn’t “even know of one” that practised responsible mining, strictly adhered to environmental standards or took full care of the local communities where they operated.

And, to back her up, President Rodrigo Duterte warned that he would cancel mining projects that were causing environmental harm.

Take that China.

The Philippines is the biggest nickel ore supplier to China and have the fifth-largest nickel reserves in the world.

Given that the Philippines mining crackdown and the South China Sea ruling all happened within one week in July, it’s still too early to determine how trade will be affected.

Leaving aside the timing of the Philippines crackdown on nickel production, the global nickel industry needs a nickel price approaching $US10 a pound in order to make worthwhile returns.

And given the bad mining practices in the Philippines, it will take a much higher nickel price to justify the extra outlays required to alter approaches to mining. China is in the front line of the countries to be affected. – The Australian

 ROBERT GOTTLIEBSEN - Business Spectator columnist Melbourne @BGottliebsen

 

 

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