• The Philippines want to levy taxes on nickel exports in order to develop their own nickel industry
• Indonesian government banned the export of unprocessed nickel in 2020
• Philippine tax plans could boost nickel prices
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What does the Philippine tax legislation have to do with the price of a lithium-ion battery in the electric cars from Tesla, Rivian, BYD, Volkswagen & Co.? Quite a lot, say some commodity experts. The government of the Philippines is preparing to introduce a rigid tax policy with regard to nickel exports, following the example of Indonesia. This would have a major impact on the nickel market as the Philippines is the second largest nickel exporter in the world after Indonesia and ahead of Russia and accounts for 11 percent of global nickel production. Why does Southeast Asia want to levy taxes on nickel? And what impact do experts expect on the price of nickel?
That is why the Philippines want to introduce a special tax on nickel exports
Philippine Minister of Environment and Natural Resources Antonia Yulo Loyzaga recently announced the introduction of a nickel tax in an interview with Bloomberg. The reason for this lies in the efforts of the South Asian state not only to be an exporter of unprocessed raw materials, but also to achieve higher added value within the country. “We no longer just want to be part of the supply chain. We want to be part of the value chain,” announces Loyzaga. Without processing domestic mineral ores ourselves, “we will only be a seller’s country. And we don’t want to be a seller’s country.” By building up a separate industry around the metal nickel, which is becoming increasingly important, many jobs are to be created and the general economic level of the emerging country is to be raised. However, this requires foreign investment in the millions.
Indonesia as a role model
In recent years, Indonesia has impressively demonstrated that the strategy of promoting the development of domestic industry through higher export taxes can work very well. The world’s largest exporter of nickel (Indonesia accounts for 48 percent of nickel production) even banned the export of unprocessed nickel in 2020. Rather, since the new legislation, the processing of the gray mineral has to take place in Indonesia itself. Since then, the Indonesian government has enjoyed a significant increase in domestic value creation, with revenue from nickel exports increasing from $3 billion to $30 billion. Dozens of foreign companies – many from China – are expanding into Indonesia and setting up business locations there to take advantage of the proximity to the large nickel deposits. According to unconfirmed rumors even Tesla is to open its next gigafactory with a production capacity of one million vehicles per year in Indonesia.
According to a report in the Manila Bulletin newspaper, Philippine Commerce Minister Alfredo Pascual is also considering a total export ban on unprocessed nickel to attract companies from Australia, Canada, China and many other countries. However, unlike Indonesia, where the vast nickel deposits are of good quality, the metal in the Philippines is generally of poorer quality. That makes refining more expensive and technologically more difficult, which could prove to be a headwind for developing a proprietary nickel industry in the Philippines. However, only just under three percent of the nine million hectares designated by the government as major mineral reserves are actually mined. The potential for further growth in nickel mining is therefore great, especially since the Philippine government is assuming stable demand for nickel in the coming years.
Possible impact on the nickel price
Should the Philippines actually implement their tax plans, this should cause the price of nickel to rise, at least in the short to medium term. Higher export costs from a key supplier could tighten supply and push up nickel prices, analysts have told Bloomberg. Export taxes “would create sales barriers for Philippine mining companies and nickel prices would soar,” Bloomberg quoted Shao Wanyi, an analyst at Guotai Junan Futures Co. in Shanghai. However, the actual implementation is uncertain and the Philippines does not have nearly as great an influence on the nickel market as Indonesia.
Nickel is primarily used for steel refining and alloying and is used in the manufacture of many different products. Nickel is particularly important for the production of lithium-ion batteries for electric cars. It is therefore not surprising that the nickel price has been in a constant upward trend since the start of the electric car boom from around 2018. Should the Philippines now also implement high export taxes on nickel after Indonesia, this could cause the nickel price to rise further and thus indirectly have a price-driving effect on the EV industry.
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