PHILIPPINES’ AQUINO GOVERNMENT IS ANTI-MINING: Issue 20 Feb 4, 2013

By Rene Pastor

The Aquino government has adopted anti-mining policies and is playing a dangerous game of chicken with the biggest mining project in the country, raising the risk the nearly $6 billion Tampakan copper mine on Mindanao island could be cancelled.

Last month, the provincial board of South Cotabato province refused to throw out its resolution banning open pit mining, a move that could prevent the Tampakan mine from starting operations. The reaction of the Aquino government is revealing.

There is a mining law in place approved by the country’s Congress. It defies logic and reason that a provincial resolution can overturn a law passed by Congress.
What Aquino’s government should be doing is getting an injunction or an order from the Supreme Court stopping South Cotabato from implementing a law that is clearly unconstitutional. If Aquino is to be consistent, he should order his Environment Department to approve the environmental certificate for the mine.

But Aquino has done nothing. His Environment Department pointed to the provincial resolution in refusing to issue the certificate.

In fact, if he is dead serious that mining is part of an economically revived Philippines, he should declare the provincial resolution illegal, refuse to honor it and tell all government agencies that any decision on mining issues will be made by Manila.

Why did the Philippine Congress pass the law if every provincial board from Ilocos Norte to Zamboanga can defy and ignore it?

The mine has turned into a political football in South Cotabato as politicians jockey and preen themselves as the environmental candidate. The pandering by Aquino to all these interest groups is a top reason why mining has virtually died in the country.

It doesn’t matter if the top Philippine finance officials say they favor mining. The actions taken by Aquino’s administration speak louder than anything. Manila is anti-mining, Manila plays politics with mining investments, and Manila changes the rules on mining when it suits it.
The Aquino government has dropped the ball on mining.

PHILIPPINE RICE YIELDS UP IN 2012, BUT LAG WORLD AVERAGE
By Rene Pastor

Rice yields in the Philippines, a country aiming to be self-sufficient in the staple food of its 95 million people, went up in 2012 but they still fall behind the world average and could affect its ability to produce more of the grain in 2013.

The Agriculture Department’s Bureau of Agricultural Statistics showed that rice yields hit 3.84 tons per hectare in 2012, up 4.35 percent from 3.68 tons in 2011. The Aquino government hopes to finally crack the 4.0 ton per hectare level in 2013 through the use of more fertilizer, increased investments in agricultural infrastructure and higher yielding seeds.

Getting to 4.0 tons would go a long way in hitting the government target of self-sufficiency in rice. The rest of the statistical picture is a sobering reminder of how much more the Philippines would need to do in rice production.

The world average in rice output is around 4.2 tons to 4.3 tons per hectares, according to estimates by the U.S. Agriculture Department and other analysts.

Yields in Vietnam stood at an average of 3.88 tons per hectare in 1995-1999, the last years of the 20th century and a level the Philippines is only starting to approach in the second decade of the 21st century. In fact, Vietnam’s five-year average rice yields for the 2000 to 2004 period hit 4.51 tons per hectare. The problems facing the Philippines in raising rice were summed up by the International Rice Research Institute:

Land area: The Philippines has around 300,000 square kilometers, of which around 43,000 square kilometers of harvested area are used for rice production. As most of the country is very mountainous and consists of many small islands, suitable land is limited to expand rice production without affecting wetlands, forests, or areas producing other crops. Urban areas also continue to expand rapidly.
Population growth: The population of the Philippines is estimated at 97 million. Its annual growth rate of around 2 percent – among the world’s highest – means that just to keep pace with growing demand, the country would have to increase rice production and yield at rates rarely seen in history.
Infrastructure: Irrigation infrastructure is not used and maintained as efficiently as it could be, thus reducing productivity potential. Transport infrastructure, particularly good-quality roads, is lacking in the Philippines, which affects the transport of rice and hinders the rice t
rade.

WITH AN EYE ON CHINA MARKET, SAN MIGUEL TO REOPEN NICKEL MINE
By Rene Pastor

The Philippines’ biggest food and beverage company, San Miguel Corporation, is putting up $3 billion to reopen a nickel mine closed by Ferdinand Marcos as demand in China is surging strongly.

San Miguel said it is putting up the money to buy the mine on Nonoc island in Surigao at the northern tip of Mindanao island. The mine had been developed in the 1970s by Marinduque Mining, but falling nickel and metal prices and huge loans prompted the government of then dictator Ferdinand Marcos to foreclose it and seize control.

San Miguel, which is trying to diversify its investments away from its core business of beverage and food, said it will spend $3 billion to develop the mine, which has large deposits of nickel and cobalt. Most of the work to develop the mine was done by Marinduque Mining. It was already operating when Marcos’s government shut it down.

Three-month nickel prices on the London Metal Exchange, the world’s premier metal exchange, stood at around $18,400 per metric ton last week, very far from the peak of nearly $52,200 per ton hit in May 2007 but double recent lows of around $9,000 per ton.

The reason for San Miguel’s interest in nickel, used mainly for stainless steel to prevent corrosion, is the vibrant market in Asia, most especially in China.

“Asia is now by far the largest regional market for nickel representing 65 percent of total world demand. China alone now accounts for close to 44 percent of world nickel demand compared with 8 percent 10 years earlier,” a report by the International Nickel Study Group said.

The INSG compiles industry reports on the metal. The closest competitor the Philippines would have in supplying nickel to China would be Myanmar, which will have its first nickel project in Tagaung Taung, and Indonesia.

The INSG said the most important use of new nickel is the production of stainless steel. This use accounts for close to two-thirds of first use nickel up from one-third in the past three decades. The market for stainless steel is growing at the rate of about over 5 percent per year. Other sectors of first use include other alloyed steels, high nickel alloys, castings, electro-plating, catalysts, chemicals and batteries.

CORN AND SOYBEAN CROPS IN BRAZIL, ARGENTINA DOMINATE MARKET THOUGHTS
By Jack Scoville, The Price Futures Group

Grains and oilseeds prices are still keeping most of their eyes on what is going on in Latin America. It remains too dry in Argentina, although the country did get some light precipitation over the weekend. Southern Brazil has also been dry, but got some beneficial precipitation over the weekend. Meanwhile, it keeps raining in central and northern Brazil, and the harvest progress has been slow.

We have been talking to our customers and sources in Latin America to get their ideas about production in South America. Our friends paint a picture of big production. Our sources in Brazil estimate production of soybeans to be between 80 million tons and 83 million tons, in line with most estimates including USDA, but below the Informa estimates.

Some note the delayed harvest in the north as reason to think of a little lower production, and there might be some small losses in the south due to the dry weather.

They do not feel that the export pace will be all that slow. One noted that harvest progress is actually ahead of last year and the five-year average. But, buyers try to get shipments earlier each year in Brazil, this year starting in late January or February.

It looks like the flow of soybeans will pick up in March, which is about normal. My sources there work with soybeans and not so much with corn.

Informa estimated corn production at just above 70 million tons, but my sources think it will be more like 68 million tons to 69 million tons. The big problem with coming up with an accurate estimate is that so much of the crop is grown in the winter season after the soybeans are harvested.

Farmers might not plant if it gets too late in the season. They are in the tropics and the rains shut off about the same time each year. They want to make sure they can get the crop developed before the rains stop, and might not plant if there is a chance they won’t. The slower the harvest of soybeans and the less planted area can be expected.

Informa estimated Argentine production at 25 million tons for corn and 54.5 million tons for soybeans. Our sources in that country think the estimates are high.

Our corn estimate is no higher than 24 million tons. Soybeans might recover, but to expect something more than 52 million tons seems hard right now. It was way too wet at planting time and then has been way too dry. This is not what these crops needed. It will take perfect weather for the Informa estimates to have any chance of being realized.

No matter what the production is down in Latin America, it is possible that corn and soybeans will make at least a short-term top in the next several weeks. After all, there will be a harvest there. That means more supplies for people to choose from and less demand for the U.S.

Prices will not get real cheap, but they should start to work lower once the southern crops hit the market and the ports. Soybeans and corn also tend to make a top in March anyway as crop ideas and planted area ideas get better known here in the U.S. too.

So, it is best for buyers to have some good coverage, but not to get extended more than another month or two into the future. There should be chances to buy cheaper in the next few months.

PALM OIL OUTLOOK: PRICES STABILIZE AS DEMAND PICTURE TURNS BRIGHTER
By Jack Scoville, The Price Futures Group

Palm Oil has bottomed and is trying to turn higher. Highlighting the rally has been the weather in South America that remains somewhat stressful for crops and the world market.

But there have been some demand positive things to happen to palm oil as well in the last few weeks. We discussed the Indian import tax moves last week. They increased taxes for vegetable oils, but they made it for all of the vegetable oils and not just some oils.

That is good news for palm oil as taxes got raised on soybean oil too, and also any other vegetable oil. Palm oil can retain its price advantage to the other oils and this should keep the demand solid from that important buyer.

Last week it was learned that cargoes of palm oil are being accepted in China. China had modified its quality standards, but it looks like this is not going to be an issue for Malaysia or Indonesia as cargoes got taken last week. This means the demand from that important buyer can start to pick up as well.

Now, the big worry is Europe, where the economy remains less than strong. However, there is no real reason to expect the Europeans to back off the demand a whole lot. It is an industrial oil there, and demand could drop a little bit.

But world economies are improving bit by bit and this means that it is more likely that palm oil demand will hold steady.

All in all, the demand news has not been bad for palm oil. Production remains strong, so the best we expect for now is sideways trading and stable prices. The next move in prices after that should be up, but for now we just expect them to hold the recent lows and develop a major low on the charts, which will take some time to get done.

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