Indonesia’s ban on unprocessed mineral export in 2012 turned out to be a boon for the Philippines as it swiftly replaced Indonesia as the top supplier of some of the raw mineral ores to China, specifically the nickel ore. China’s nickel ore import from the Philippines increased by 22% to ~36mn tonnes in 2014. However, soon (in Jul 2014) Philippine’s government realised that despite being the top supplier, its mining sector contributes less than 1% to its economy. One critical aspect, which could increase the mining’s contribution to an economy is through the manufacture and export of high-value products. Therefore, in line with this, a proposal was floated to ban the export of unprocessed minerals and enhance investments in processing operations.
However, mineral processing is dependent on huge capital expenditures and on other critical factors like infrastructure and cost of power. A lack of development of infrastructure and high power tariffs make the investment in smelters and processing plants uneconomical. Presently, the Philippines has only two processing plants for nickel and gold respectively and one of copper.
The ban proposal boosted the share prices of integrated companies which had mining as well as processing operations, while companies with only mining operations witnessed a dip in their share prices.
The impact of this proposed export ban by the Philippines has been yet to reflect on its economy, however, this development has significantly influenced the nickel prices globally. The nickel LME’s price jumped by ~25% from 8974 $/MT in July 2016 to 11,175 $/MT in November 2016. Although one can agree that the timing of the ban coincided with a positive boost witnessed in other international base metals, a major part of the strong gains in the nickel prices was led by the export ban announcement by the Philippines.
Therefore, rather than forcing the miners to set up processing facilities, if the government of the Philippines (and perhaps the government of Indonesia too) was to incentivise their setting up of domestic processing facilities with fiscal incentives and focused on creating an environment for investment (i.e. improved infrastructure), it may have presented an attractive proposition and the ultimate goal of higher value added domestically may have been achieved in a constructive manner.
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