Indonesia’s value-add strategy has begun to attract attention from other metal-rich nations. According to a recent report, the Philippines is the latest country to consider a raw nickel export tax or even an outright ban. Reports indicate the government is currently eyeing a 10% tax on nickel ore exports. Apparently, this is just one part of a larger plan to increase government revenue from the mining sector. The government of the Philippines is also reportedly mulling a 3% royalty payment on output from large-scale miners.

Like Indonesia, the Philippines aims to attract investments for downstream industries. According to Environment and Natural Resources Secretary Yulo Loyzaga, “we want to move out from being just part of the supply chain. We want to be part of the value chain.”

Potential Impact on the Nickel Price and Global Market

In terms of market impact, a tax from the Philippines would add support to the nickel price, albeit to a lesser extent. It would also tighten nickel supply for the foreseeable future, thus increasing production costs for downstream industries. However, it is likely more of a medium- or long-term threat. Any such plans would require both approval and implementation before markets see any impact.

Moreover, should the Philippines attract the investments it seeks, it could take years for such industries to become operational. And should global economic pressures see demand for nickel drop, it could offset the potential impact. However, those pressures could also test the country’s resolve to continue the tax or ban. China would feel the brunt of the effects should the Philippines go forward with the policy, followed by Japan. China currently accounts for around 90% of the Philippines’ nickel exports.

Many Experts Remain Critical of the Plan

It is worth noting that such considerations have come with strong opposition, which could still derail the government’s plans. In fact, the largest critics of the move include the Philippines’ own mining sector. President of the Philippine Nickel Industry and Global Ferronickel Holdings Inc., Dante Bravo, recently told Reuters, “the initial proposal in the House of Representatives was 10%. That will kill the industry.”

Other critics have noted the flawed comparison between Indonesia and the Philippines. While Indonesia accounts for 48% of global supply, the Philippines accounts for just 11%. This gives Indonesia considerably more leverage in the market. According to the U.S. Geological Survey (USGS), the Philippines was the second largest producer in 2022. Still, its output sat markedly beneath that of Indonesia.

Estimates have Indonesia producing 1,600,000 tons of nickel in 2022. In the same year, the Philippines produced just 330,000 tons. Moreover, the ore supplied by the Philippines is reportedly lower quality than that sourced from Indonesia. The Philippines sits at an even greater disadvantage considering its reserves. While it remains the second largest global supplier, the Philippines holds only the 6th largest reserves. This fact alone could cause hesitation among potential investors.

Beyond the Philippines: Nickel Price Concerns

A tax or outright ban from the Philippines is not, at this point, a guarantee. However, such considerations do pose an interesting hypothetical going forward. Will other countries follow? How about those that boast a larger market share? Chile and Peru, for example, stand as the world’s largest and second-largest copper producers, respectively. What’s more, both have repeatedly attempted to levy royalties on their mining industries over recent years.

Beyond that, estimates state that copper supply will experience a significant supply deficit in the coming years, partly due to growing demand. Projections like these could incentivize countries to adopt an Indonesian-style value-add strategy. This would prove especially tempting for those nations looking for ways to better exploit their resources. However, if this comes to fruition and other countries look to replicate Indonesia’s success, it will invariably reshape global market dynamics.

By Nichole Bastin and Katie Benchina Olsen

Source: https://finance.yahoo.com/news/philippines-looks-replicate-indonesia-nickel-190000787.html