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BHP sees imminent turning point in nickel with deficit looming

Problems in South East Asia tipping the market into deficit.

BHP Billiton Ltd., the world’s largest mining company, sees the nickel market swinging into deficit because of supply threats in the Philippines and growing demand from electric vehicles and stainless steel.

“There are signs that this year could be finally the turning point for nickel with many expecting the market to be in deficit and so starting the much needed re-balancing process,” Eduard Haegel, asset president of BHP’s Nickel West unit, said at a conference in Perth Thursday. “The welcome return to balance over the next few years should see further recovery in nickel prices.”

Nickel has rebounded more than a third from the intraday low in February this year, which was the cheapest in more than a decade. Prices have been buoyed as the market awaits the final results from a nationwide audit in the Philippines, the world’s largest producer, which was ordered by President Rodrigo Duterte to ensure suppliers aren’t flouting environmental rules.

“The current situation in the Philippines where mines representing around half of the country’s annual nickel output are facing potential suspension could hasten this by disrupting more supply,” Haegel said, referring to the market rebalancing. There’s a high level of uncertainty surrounding the changes, he told reporters after his presentation.

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The Philippines accounts for about a quarter of global mined nickel supply, with most cargoes going to China. Banks including Goldman Sachs Group Inc. have expressed concern that the closures will crimp output and push up prices. Nickel traded at $10,290 a metric ton on Thursday compared with the intraday low of $7,550 in February. BHP closed up 1.7 percent in Sydney.

Indonesia used to be the biggest supplier of nickel ore to China before it banned shipments in 2014 to build a domestic smelting industry. The country is considering changes to export rules with a decision expected in weeks. The government will probably keep a ban on raw nickel ore and bauxite sales, Luhut Panjaitan, then acting energy and mineral resources minister, told reporters last week, after earlier suggesting the moratorium may be eased.

Mixed signals from Indonesia and the Philippines have left the market second-guessing what’s going to happen, Dan Lougher, managing director of Australian nickel producer Western Areas Ltd. said at the conference. “Western Areas has taken a position that we need to get on with our business, open up new mines,” he said. “We are probably seeing some green shoots coming through.”

Demand for nickel is being driven by stainless steel use in China and by lithium-ion battery makers for electric vehicles. By 2035, there will be about 140 million electric cars on the road, representing about 8 percent of the predicted fleet of 1.8 billion, Haegel said Thursday.

BHP is “monitoring with interest” the future shift in technologies, he said. The Nickel West unit has mines, concentrators, a smelter and refinery in Western Australia and produces about 100,000 tons of nickel annually. The company is expanding mines and exploring for resources to help production extend to 2038, he said. It’s evaluating options for the Venus deposit, also in the state.

 © 2016 Bloomberg L.P

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