| Industrial cargo cranes in Manila Bay, Philippines. The country exported nearly 97% of its nickel ore and concentrates to China in 2021. Source: Nikada/E+ via Getty Images |
The Philippines is eyeing export restrictions on nickel ore, hoping to replicate Indonesia's success at moving down the battery value stream.
The world's second-largest producer of mined nickel is considering taxing or banning nickel ore exports to encourage investment in domestic nickel refining, Manila Bulletin reported Jan. 30, citing Department of Trade and Industry Secretary Alfredo Pascual.
The move was inspired by Indonesia, which attracted billions of dollars of foreign investment in the metals and mining sector and the electric vehicle supply chain after banning nickel ore exports in 2020. The ban, which aimed to incentivize expansion of its domestic downstream sector, led to Indonesia's processed nickel exports jumping to US$33.8 billion in 2022, state news agency Antara reported Jan. 17, citing Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan.
In comparison, the Philippines' nickel ore exports to China amounted to only $2.67 billion in 2022, according to data from China's General Administration of Customs.
"The Philippines can replicate what Indonesia has done on a smaller scale," Nicholas Mapa, an ING Bank senior economist based in Manila, told S&P Global Commodity Insights. "Even if the Philippines doesn't go all the way into EV production, as long as they're supplying batteries ... or at least the finished product from nickel ore, I think that will be a positive for the country."
The hope and the dream
"We want to move out from being just part of the supply chain. We want to be part of the value chain," Environment and Natural Resources Secretary Antonia Yulo Loyzaga said in an interview with Bloomberg on Jan. 30.
Both Southeast Asian countries are rich in nickel laterite ore, which is refined into nickel for batteries and stainless steel. The Philippines accounted for 10% of global mined nickel output in 2022, second only to top producer Indonesia, which produced 48.8%, according to the U.S. Geological Survey.
The country is hoping for an economic boost by moving "away from resource-based exports into higher value-added exports," ING's Mapa said. Taxing nickel ore exports will also help the government raise revenues, although it might not be enough to address the country's tight fiscal situation, the analyst added.
"The current administration wants to run a sovereign wealth fund, and [legislators] had cited using the revenues from taxes on export resources as a source," Mapa added. "If they really are intent on pushing that sovereign wealth fund, it sounds like they also want to push for this new tax on exports of nickel."
Obstacles standing in the way
Duplicating Indonesia's success will not be easy. So far, the Philippines has been less attractive to downstream companies than Indonesia, analysts said.
The Philippines has stricter environmental requirements, smaller nickel reserves, and less metals and mining infrastructure than Indonesia, according to Gao Yuan, a nickel analyst at Shanghai Metals Market.
Premium nickel reserves in the Philippines are depleting after years of mining. The Philippines' commercially recoverable and economically viable nickel reserves dropped by 4.8% to 474.49 million tonnes in 2021, according to The Philippine Statistics Authority.
The Philippines' low-grade nickel ore is suitable for high-pressure acid leach, or HPAL, technology, but the capital-intensive process is out of reach for many small and medium-sized nickel mining companies, according to Ying Li, mine economics analyst at Commodity Insights. HPAL projects also face the problem of toxic waste disposal, Gao said, and this would be magnified under the Philippines' strict environmental rules.
Industrial power costs are also higher in the Philippines, which relies on coal imports, whereas Indonesia enjoys lower energy prices owing to its abundant coal resources, according to Li.
Mitigating regulatory risks
Still, the Philippines could become a secondary destination for companies seeking to mitigate regulatory risks around the Indonesian government's ever-changing commodity export policies. Indonesia lifted a 2014 export ban on unprocessed nickel ore in 2017, then re-imposed the ban in 2020.
"It could be a good alternative to have a smaller operation in the Philippines just for contingency because Indonesia has resorted to very drastic policy changes," ING's Mapa said.
Philippines officials have seen growing interest in foreign investment. Chinese investors pledged to invest US$7.32 billion in the electric vehicle and mineral processing sectors in the Philippines during President Ferdinand Marcos Jr.'s first state visit to China on Jan. 5.
Loyzaga said the government is in talks with some large-scale miners from Canada and Australia to invest in the country.
Chinese nickel industry to take hit
A ban or tariffs on Philippine nickel ore exports would drive up costs for downstream producers in Asia, and the Chinese nickel and stainless steel industry would be hit hardest.
After Indonesia banned nickel ore exports in 2020, China sourced more than 80% of its nickel ore imports from the Philippines, data from the General Administration of Customs showed. The following year, 96.5% of the Philippines' nickel ore exports went to China, data from the Philippine Statistics Authority showed.
China's nickel processing operations that heavily rely on feedstock from the Philippines, including HPAL and rotary kiln electric furnace nickel projects, would feel the bite if the Philippines imposes export tariffs on nickel ore. The cost of purchasing nickel ore for smelters and refiners in China would rise, driving up the cost of raw nickel smelting, Commodity Insights' Li said.
The Philippines' potential ban will accelerate China's capacity cuts, which would push up the cost of stainless steel production, Gao said.
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