4 Nickel Miners Set to Soar On Philippines Crackdown – by Daniel Shane (Barrons – August 30, 2016)


The prospect of stricter mining laws could threaten supplies from one of the world’s biggest nickel producers.

Drug pushers aren’t the only victims in a crackdown by hardline Philippines president Rodrigo Duterte. The Southeast Asian archipelago’s freshly-minted government has taken aim at miners, telling them to shape up or shut down. That could be a boon for nickel miner stocks elsewhere in the region, which should benefit from any disruptions in supply.

Tough guy Duterte, elected in a landslide vote this summer, has made no secret of his “big problems” with the Philippines’ mining industry, who he accuses of skirting environmental rules and “destroying the soil of our country.” That could cause a global supply crunch for the metal – which is mainly used in making stainless steel – as the Philippines makes up a fifth of global output.

It sells most of it to China. Filipino authorities have closed several mines already with more to shutter soon, helping lift nickel prices by around 20% to $5 a pound. There’s room for nickel to head higher as the effect of shortages hasn’t really kicked in yet. Filipino nickel miners generally produce less from July to January, meaning the real impact of tighter supply probably won’t be felt until the start of next year.

It isn’t just tumult in the Philippines that’s giving nickel a jolt. Stainless still mills in China are ramping up production, helping to reverse lackluster nickel demand seen over the last few years. Production of stainless alloys in the world’s second biggest economy jumped 8% year-on-year in the second quarter. That’s creating more demand for nickel from big exporters like the Philippines, Indonesia and Australia.

That’s led UBS to bet on the price of nickel rising even further to USD6 a pound by 2018. That should help lift nickel miners’ margins, but investors should still do their homework when digging for returns.

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