“Why is mining more important than people’s lives?
That’s what the Philippines environment minister had to say after ordering the closure of at least 5 nickel mines and suspending others including the country’s top gold producer for causing environmental destruction.
Nickel prices were supported during 2016 on fears that the Philippines would carry out this pledge to put the environment before profits. In so doing though much of the supply of nickel from the main exporter to China could be cut off.
Nickel prices fell back earlier in January when the second largest exporter, Indonesia abruptly announced a partial lifting of its nickel ore export ban. However, the rules still appear relatively opaque and suggest that supply will only come back onto the market slowly.
Some 11 nickel mines have already been shutdown as part of the crackdown. Prior to the Philippines announcement there was an expectation that a further 20 mines could be under threat, so the fact that 5 have been ordered to close might represent something of a reprieve relative to market expectations.
For now at least it appears that nickel, mainly used as an anti-corrosive in steel alloys is set for a further squeeze. Nickel prices have lagged other industrial metal prices over the past 12-13 months. While zinc prices rose 80%, others rose in the range 20%-50%. Nickel prices meanwhile only registered a 15% increase.
— Paul Robinson (@BaseMetals) February 1, 2017
Related article: Why have zinc prices been so strong in 2016?
One of the risks is that other nickel producers, from Australia, Canada and elsewhere, that mothballed their operations when prices were low now decide to bring back production. History suggests that they will, but the pace of bringing on supply could be sclerotic potentially making a spike in prices more likely.
The other risk is the US dollar. Nickel, as well other industrial metals of lead, copper and silver are among the commodities most sensitive to movements in the US currency. If the dollar appreciates, perhaps if the Fed tightens monetary policy sharper than the market expects and so increases real yields then nickel prices could hit a ceiling. Equally, if the dollar retreats from current levels then nickel is one of the commodities that stands to gain the most.
Related article: History points to nickel leading rebound in base metal prices