UBS makes a bugle call for nickel bulls on crackdown, demand

SHANGHAI – Rising demand, deficits and a crackdown in the Philippines are combining to make nickel one of its most-preferred commodities, according to UBS Group, which said the full impact of mine shutdowns in the Southeast Asia nation may be felt only next year when exports fail to ramp up as usual.

The government’s audit of standards in the mining sector is a front-of-mind risk that’s already shut down about 2% of world supply, analysts including Daniel Morgan wrote in a note. Ore shipments from the top supplier could fall to 314 000 metric tons next year from 410 000 tons last year, it said.

Nickel has been the best-performing base metal in the second half, rallying to its highest level in a year August 10, on speculation that the Philippine crackdown led by President Rodrigo Duterte will crimp supplies. Prices have also been supported as rising stainless-steel output boosts consumption, the UBS analysts said in the August 12 report.

As Philippine supply usually drops from July to January each year, “the real impact may not be felt until early 2017, when exports fail to ramp up as they normally would,” the analysts said. “Our price forecast is a bullish trajectory and nickel remains one of our most-preferred commodity exposures.”

PRICE OUTLOOK
Nickel rose as much as 0.9% to $10 400 a ton on the London Metal Exchange and was at $10 310 at 8:23 a.m. in London. UBS sees prices at $11 023 next year, $13 228 in 2018 and $19 621 by 2020 after the market flipped from a surplus last year to what’s expected to be a run of shortages.

President Duterte has pledged to shut any mines that don’t comply with international standards, telling miners that “ we will survive as a nation without you” if they are closed. The Philippines accounts for about a fifth of world nickel supply, and became China’s main source of ore after Indonesia banned shipments of unprocessed raw materials at the start of 2014.

Signs of the crackdown’s impact are mounting. DMCI Mining said on Monday that it’s laying off hundreds of seasonal workers from operating companies in Palawan and Zambales provinces that have been suspended by the government. The company said it’s cooperating fully with authorities to facilitate the audit and lift the suspension order.

In China, production of stainless steel, used in kitchen equipment and chemical plants, expanded 7% to 11.6-million tons in the first half, according to Beijing Antaike Information Development Co. Stainless-steel output accounts for about 65% of nickel first use, according to UBS.