Is nickel's current rally sustainable or is the metal merely having a strong run because market participants are more focused on the environmental crackdown in top ore miner the Philippines, rather than on the surge in Indonesian ferronickel exports?

No doubt nickel is one of the strongest commodity performers this year, with benchmark London futures rising 13.3 percent from the end of last year to the close on Wednesday.

The bulk of that rally has come in the past three months as new Philippine President Rodrigo Duterte and his hard-line environment secretary Regina Lopez cracked down on alleged environmental abuses by the mining industry.

At least eight nickel mines have been shut down in the Philippines this year, cutting around 10 percent of the country's capacity.

The Chamber of Mines of the Philippines has called the closure of mines a "demolition campaign", but Lopez appears undeterred, saying more mines will be shut if they are having adverse impacts on the environment.

Certainly, it seems that lower Philippine nickel ore exports are already showing up in the import numbers for China, the world's biggest buyer of the metal that is used mainly in the manufacture of stainless steel and electronics.

China imported 3.163 million tonnes of nickel ore and concentrates from the Philippines in July, down 35.9 percent from the same month a year ago, according to customs data.

Imports in the first seven months totalled 13.84 million tonnes, a drop of 27.3 percent from the same period last year.

This is significant as the Philippines is by far and away the largest supplier of nickel ore to China, accounting for almost 96 percent of the total for January-July.

This means that if there is a sustained drop in supply from the Philippines it will be hard for Chinese nickel pig iron producers to source replacement material.

This is especially true as nickel ore cargoes from Indonesia, which used to be China's top supplier, remain unavailable as part of that country's ban on the export of certain unprocessed minerals, such as nickel and bauxite.

INDONESIA'S NICKEL SWITCH

Indonesia's shipments of nickel ore came to an abrupt halt in early 2014 after the Southeast Asian nation enacted a mineral export ban as part of efforts to ensure investment in domestic downstream processing plants.

It may also be that this effort is starting to show up in China's import figures, with a large jump in shipments of ferronickel, an intermediate stage of the metal that contains both nickel and iron.

China's imports of ferronickel from Indonesia were 74,493 tonnes in July, more than five times taken in the same month a year earlier.

Likewise, year-to-date imports from Indonesia have surged more than four-fold to 390,706 tonnes, giving the nation a 70 percent share of Chinese imports of ferronickel.

This surge in imports of ferronickel is significant as it shows that the way China gets its nickel is changing.

Indonesian nickel producer PT Antam says on its website that it extracts about one tonne of ferronickel from between 70 and 80 tonnes of nickel ore.

If these figures are assumed to be representative of Indonesia's ferronickel production as a whole, it means the country's ferronickel exports to China in the first seven months of the year are roughly equivalent to 27.3 million tonnes of nickel ore.

This is more than double the amount of nickel ore exported to China from the Philippines, providing proof that China isn't importing less nickel, but is changing the form in which it imports the metal.

The Indonesian ore export ban of early 2014 led to a 50 percent spike in London nickel prices from January to a peak of $21,625 a tonne on May 13 that year.

But as the market came to realise that there was sufficient nickel ore elsewhere to compensate for lost Indonesian output, prices slumped to a low of $7,550 a tonne on Feb. 12 this year.

While the current disruptions in the Philippines have no doubt tightened the market for nickel ore, it's more than likely that the ramp up of ferronickel exports from Indonesia are more than sufficient compensation for the overall nickel market.

The difficulty in sourcing nickel ore is certainly a problem for China's nickel pig iron producers, but their problems don't necessarily translate into a shortage of nickel in the global market, especially if Indonesia is back in the market as a ferronickel supplier.

http://www.reuters.com/article/column-russell-nickel-china-idUSL3N1B626F

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A significant reduction in the nickel price has dented Perth-based miner Western Areas’ revenue in the 2016 financial year, pushing the company into an after-tax loss of A$29.78-million.

The 2016 loss compares with a profit of A$35.01-million in the 2015 financial year, Western Areas, which is the only nickel producing pure play company listed on the ASX, reported on Thursday.

Revenue decreased to A$209.12-million, from A$312.68-million in the previous financial year, while sales volumes decreased to 24.79-million tonnes, from 26.04-million tonnes in 2015. Mine production increased to 27.61-million tonnes in 2016, from 26.52-million tonnes in 2015, while mill production remained unchanged at 25.01-million tonnes.

Production is built around two underground nickel mines, Flying Fox and Spotted Quoll, both within Western Area’s Forrestania project area, in Western Australia.

Western Areas has managed to deliver improvements insafety and cost reductions, lowering its cash costs in US dollar terms from $1.94/lb in 2015 to $1.64/lb in 2016, but MDDan Lougher said that the nickel price environment had failed to reward the company’s efforts.

“Western Areas has clearly demonstrated its resilience and flexibility by seeing through the worst nickel priceenvironment in its operating history.”

The miner realised a nickel price of A$5.69/lb in the financialyear, compared with A$7.87/lb in 2015.

“The company took decisive action in October 2015 by announcing the deferral of capital expenditure and someexploration activities into the 2017 financial year. These decisions are only possible due to prior period investments in the business and reflect the operational flexibility we’ve built into the business model,” Lougher said.

“We believe that the company is well set to either operate in a difficult commodity price environment or prosper in an improving nickel price situation by virtue of the actions and decisions taken over the last eighteen months,” he added.

Post year-end, there was an improvement in the nickel price which resulted in the June month experiencing positive quotational price adjustments of A$3.4-million (tax effected), for nickel price movements in July.

Western Areas provided a production guidance of between 22 500 t and 24 500 t of ore for the 2017 financial year. Flying Fox is estimated to contribute between 10 000 t and 11 000 t, while the Spotted Quoll estimate is between 12 500 t and 13 500 t. The group’s nickel-in-concentrate production guidance is between 20 200 t and 22 200 t.

http://www.miningweekly.com/article/nickel-price-weigh-on-western-areas-2016-results-2016-08-25

Mineral sands miner Iluka Resourcesplunged to a net loss of $20.9-milllion in the first half of 2016, compared with a profit of $20.4-million a year earlier, owing to lower revenue growth.

Mineral sands revenue dipped from $349.6-million in the six months ended June 30, 2015, to $338.4-million in period under review, the ASX-listed company reported on Thursday.

“The poor half-year financial results reflect a lack of overall revenue growth, despite 15% higher zircon/rutile/synthetic rutile sales volumes. Lower prices prevailed, especially for zircon, as Iluka responded to competitor price positioning, but gross margins were protected through reductions in unit costs of goods sold,” commented MD David Robb.

Zircon/rutile/synthetic rutile production increased by 20.8% year-on-year to 334.4-million tonnes, while ilmenite production decreased by 15.9% to 164.1-million tonnes, putting total mineral sands production at 498.5-million tonnes, compared with 472-million tonnes in the first half of 2015.

Zircon/rutile/synthetic rutile sales increased from 275.9-million tonnes to 316.4-million tonnes, generating revenue of $321.1-million. Ilmenite sales fell to 17.7-million tonnes, from 159.5-million tonnes, generating revenue of $17.3-million.

Sales mix factors, including a higher proportion of synthetic rutile and zircon concentrate sales, also influenced revenue outcomes, as did a lower Mining area C iron-ore royalty contribution.

“Earnings and free cash flow generation were adversely affected, influenced in part by the timing of sales towards the end of the half and, therefore, lower collections occurring within the half,” he said, adding that free cash flow was expected to be second-half weighted.

Robb detailed Iluka’s approach to adverse market conditions, pointing out that the company had constrained its production to match demand and that it continued to focus on operational efficiency and unit cash cost improvements, reporting a reduction in unit cash costs of production of 34.7% and a 12.7% reduction in the unit cost of goods sold.

The group also continued to focus on investing in its future, he said, stating that it invested in trialing an innovativemineral sands mining technique, together with continued support for other research and development work in mineral sands mining and processing.

Iluka aimed to take advantage of opportunities by investing in a counter-cyclical manner, Robb said, pointing to the offer for Sierra Rutile as one such example.

“Investing counter-cyclically, by nature, involves investing at a time when current cash flows are depressed. To do otherwise is to fall into the resources industry trap of investing pro-cyclically. The timing of investment, as well as the nature of investment, is central to the creation of value in mineral resources, as is a through-the-cycle commitment toexploration, innovation and technology.”

http://www.miningweekly.com/article/iluka-sinks-to-half-year-loss-2016-08-25

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