MINING PRODUCTION VALUE FALLS FOR 3RD QUARTER IN A ROW; A ‘SETBACK,’ SAYS GOV’T: Issue 16 Jan 7, 2013

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Philippine Metallic Mineral Production, January-September 2012 vs. January-September 2011

By Rene Pastor

The value of Philippine mining production dropped in the third quarter of 2012 by almost 20 percent, the third straight quarter it had fallen as higher taxes and an accident in a key miner depressed the sector.

The value of metallic mineral production slid to just under $2 billion from nearly $2.5 billion in the same period in 2011, the government’s Mines and Geosciences Bureau (MGB) said.

The falling output coincides with the issuance of government policies which have stalled development of mining in one of Asia’s most highly mineralized countries.

“This is the third consecutive quarter that the industry suffered a setback. The suspension in the mine operation of a number of producers, the imposition of 2 percent excise tax and 5 percent creditable withholding tax on all gold small-scale miners/traders, and the less upbeat metal prices in the world market left the industry wanting,” the MGB said in a statement.

“The suspension in the operations of Padcal Copper-Gold Project of Philex Mining Corporation in Benguet Province, Nonoc Nickel Project of Shuley Mines Inc. – Pacific Nickel Philippines Inc. in Surigao Del Norte, Leyte Magnetite Project of Leyte Ironsand Corporation in Leyte Province and Paracale Gold Project of Johson Gold Mining Corporation in Camarines Norte also contributed to the overall lackluster performance of the metallic sector,” MGB added.

As of November 2012

MGB said another factor for the weak performance of Philippine mining would be a softening in world metal prices. “The slowdown in the global economy led prices to close at lower levels compared to the previous years,” it said.

The exception would be gold prices, which remained strong given the shaky nature of the world economy. MGB said gold’s average price shot up to $1,669.84 per ounce in the period it is reviewing, an increase of over 500 percent from its level in 2001 of $270.71 per ounce.

PH MINING IN LIMBO UNTIL AFTER MAY ELECTIONS
By Rene Pastor

The Philippine government has effectively placed the mining industry in limbo by sitting on rules to govern the industry.

As things stand and given the politics of the situation, the government of Benigno Aquino III will conveniently wait for the May congressional elections before possibly putting in place a mining policy. Aquino has acted with notable indecisiveness when it comes to mining.

It wants the revenues given to government increased because of the recent strong performance of metal prices in the world market.

Mining industry analysts feel the approach is wrong-headed because it imposes a high-tax regime when prices are strong. When prices are weak, the share of the government will of course have to go down.

But the most serious impact of Manila’s approach is its pandering to various interest groups – from the Catholic Church to local political fiefdoms on the different islands of the country where mines are located.

The undercurrent of frustration can be seen in the statement last year by Mr. Peter Forrestal, the president of Sagittarius Mining whose Tampakan project, the biggest foreign investment in the Philippines, has been delayed three times.

One of the top reasons for that, he says, is “the ongoing uncertainty created by a provincial ordinance that is in conflict with national law, and the denial of the Mine Environmental Compliance Certificate by the Philippine Department of Environment and Natural Resources, which is currently under appeal to the Office of the President.”

You have a national government department refusing to issue the environmental certificate and using the local ordinance as its reason for doing so. At some point, mining companies are going to throw up their hands and say they’ve had enough.

As well as the Aquino government has performed in fostering the country’s economic performance, its management of the mining industry has been a major disappointment so far.

DEMAND SLACKENS IN CORN, BUT WHEAT AND RICE BUYING PERKIER
By Jack Scoville, The Price Futures Group

Grains and oilseeds moved lower last week as traders liquidated bullish positions due to demand concerns, chart patterns, and ideas of better weather in South America.

The demand concerns are real. We had another horrible week of corn export sales, just under 50,000 tons sold. Even for the holiday period this is a very low amount. China keeps cancelling soybeans purchases here and will wait for the South American production for at least some of it. Only wheat and rice had positive sales, and even those were less than the previous week.

Chart patterns have also indicated that prices in general can work lower, but these same charts are indicating that futures might be close to down side objectives, at least for this part of the move. It is possible to see at least a small rally in prices this week for other reasons.

The U.S. Department of Agriculture (USDA) will issue its annual crop production summary on Friday at 8:30 a.m. EST U.S. time. It is the biggest report of the year and could set the direction of prices for the next few weeks and months.

A lot of speculators have been long the markets, especially corn and soybeans, and have been liquidating those positions. Others have been selling wheat short due to ideas of low demand. It is possible that some shorts pull out of the wheat market and it is also possible that the other markets rally just because they have gone down so much.

The weather seems to be good in South America right now. Most of Argentina has turned drier, although some pretty big rains were reported in northern parts of the country over the weekend. But, even these areas should turn drier this week and should stay dry for at least the next week or so.

Meanwhile, some beneficial rains should fall in central and southern Brazil. Even northern Brazil could see rains develop late in the week, and it has been a little dry in that area. Both countries have great chances to produce big soybean crops. Corn crops could be another matter if some area intended for corn is moved to soybeans. This has happened some in Argentina, but we are not sure about Brazil.

World markets show that U.S. prices are cheap for wheat and competitive for corn and soybeans. We have products here to sell, and South America does not until the new harvest comes in.

So, there is every chance that demand for U.S. products will increase in the short term. We have advised our clients to make sure they are covered through February in soybeans but not much later due to the idea that South American price pressure will affect prices by March.

We like the idea of finding price levels to ensure corn and wheat supplies at least into February and quite possibly much longer as we see no real competition for wheat right now and offers are hard to find for corn as well.

PHILIPPINES AIMS FOR RICE SELF-SUFFICIENCY, BUT PROBLEMS LOOM
By Rene Pastor

The Philippines, the world’s top importer of rice, is aiming to be self-sufficient in rice and procurement officials at a state-owned agency said the only imports they are looking at would be private in nature in 2013.

Manila believes multiple croppings and the use of GMO rice would boost productivity enough that the country’s farmers would produce the 13 million metric tons of milled rice consumed annually by the 95 million people in the Southeast Asian nation.

New rice technology is being tapped from the International Rice Research Institute and investments in irrigation boosted so the country would not have to import the staple cereal crop.

The simple, basic question is whether the Philippines can do it.

And even if you can become self-sufficient in rice in 2013, can the government buck the numbers which argue that enough rice cannot be produced by the country.

The Digest believes that maximum Philippine milled rice production would be around 12.5 million tons in a year with no extreme weather event. Production in 2012 was estimated around 11 to 11.5 million tons.

The country gets on average 20 typhoons per year. One, possibly two, will hit a major rice growing area. Luck is fickle and 2012 was a lucky year in that a major Philippine rice area was not badly hit by a typhoon.

Demand is also surging. That is what a runaway population does. One reason the Philippines imported rice in 2012 was because the government low-balled the demand estimate. If anything, demand should be higher, especially since spending will accelerate due to mid-term Congressional and local elections in May.

The amount of land planted to rice is finite. The only way to boost productivity is GMO rice or multiple croppings.

GMO rice output increases are a given. Multiple croppings, while sounding nice, raises the prospect that soil fertility can be exhausted. That is why the Manila government has entered into talks with an Indian firm to craft a soil management plan.

Multiple croppings then are a double-edged sword for the Philippines. You could boost production short-term, but leave the soil exhausted so much that production would crash in subsequent years.

COCONUT OIL EXPORTS UP, BUT TYPHOON IMPACT STILL TO PLAY OUT
By Rene Pastor

Coconut oil exports by the Philippines, the top producer of the vegetable oil in the world, climbed almost 60 percent to 72,880 metric tons in the month of November, an industry group said.

The United Coconut Associations of the Philippines said coconut oil exports in the first 11 months of 2012 hit 773,284 tons, about 3 percent up from the 750,948 tons in the same period in 2011.

The output is expected to fall off after powerful typhoon Bopha (locally Pablo) hit the southern island of Mindanao and cut down one million of the 340 million trees in the country. Some industry analysts feel the impact could spill over into the first quarter of 2013.

A large portion of coconut oil output is normally hit toward the end of a year so production will take a hit.
Philippine coconut oil production for 2012 is still expected to be up from the drought-hit 2011 crop. UCAP believes coconut oil exports for 2012 will hit 925,000 tons and some in the industry feel the worst it could do would be 900,000 tons. That would still be up from 2011 output of 823,381 tons when the crop was damaged by a prolonged dry spell.

Coconut oil demand last year has suffered a bit because it was running at a premium to top rival palm kernel oil. In December, the differential has narrowed, according to traders, and coconut oil has been trading at an even of a $5 discount to palm kernel oil.

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