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China Plays Ore Hopscotch as Southeast Asian Mining Slows
Environmental concerns among traditional suppliers have sent the massive importer further afield
By BIMAN MUKHERJI
Sept. 22, 2016 8:39 a.m. ET
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As one of the world’s leading metal producers, China is running into a new problem acquiring the mineral ores it needs to churn out stainless steel and aluminum: concern for the environment.
Rising anti-mining sentiment rippling through Southeast Asia has led to a series of mine shutdowns that are helping push up prices for some crucial minerals. The latest threat to China’s ability to source minerals comes from the Philippines, the world’s top supplier of nickel ore.
The official in charge of overseeing Philippine mines, Environment and Natural Resources Secretary Regina Lopez, said Wednesday that a sweeping audit of the mining sector due out next week is likely to lead to the suspension of more than 10 metal-ore mines, around a quarter of the nation’s total. She had previously ordered operations halted at several nickel mines.
On Thursday, nickel prices on the London Metal Exchange shot up 1.6%. Prices are up by around 24% since the start of June, the month after Rodrigo Duterte, who has warned the mining industry to improve its environmental record, was elected president of the Philippines.
Environmental concerns are emerging as a rare booster for prices of some of the world’s important mineral ores. Nickel prices, for example, have been on a downward trend since 2011.
In turn, China—a global commodities powerhouse and the world’s largest producer of stainless steel and aluminum—is already having to look further afield for additional sources of raw materials. That may create new winners and losers among the world’s mining countries. And it likely will add costs to mining in Southeast Asia, a region where job creation has often trumped strict environmental regulation and enforcement.
“These supply issues will have a significant impact on prices,” said Marius Toime, a Singapore-based legal partner at the international law firm Berwin Leighton Paisner who specializes in resources.
For years, China has relied on a steady stream of cheap mineral ore from Southeast Asia.
That equation didn’t change significantly even after Indonesia, which had been China’s top ore supplier, banned the export of mineral ores more than two years ago. Instead, China turned to the Philippines for nickel ore, which is used to make refined nickel that is turned into stainless steel, and to Malaysia for bauxite, used in aluminum.
But increasingly, people in Southeast Asia are raising alarms about air and water pollution that they blame on mining.
Meanwhile, China is restricting its own mining industry thanks to environmental concerns and low commodity prices.
The combination has meant China is leaning more heavily on farther-away countries such as Australia and Guinea in Africa for supplies of minerals such as bauxite. The increased difficulty in sourcing mineral ores and the overall weak market outlook may weigh on China’s metals production.
The phenomenon is playing out in other commodities beyond nickel. Tin prices, for example, have shot up by about 35% this year to around 19,450 dollars per ton, partly because of a crackdown in Indonesia on illegal mining. The Southeast Asian nation accounts for around a third of China’s total imports of refined tin.
The Philippines is also considering a ban on ore exports, government officials say.
Indonesia’s export ban, which included bauxite and nickel ore, was aimed at increasing mineral values, building up its domestic refining sector and creating jobs.
In the wake of Indonesia’s ban, China bought more from Malaysia, which last year emerged as China’s top bauxite supplier and accounted for about 43% of total imports. Australia and India last year accounted for about 35% and 14% respectively, according to Sabrin Chowdhury, commodities analyst at BMI Research.
But Malaysian citizens objected, blaming the rise in bauxite mining for increased water and air pollution. In January, Malaysia slapped a temporary ban on new bauxite mining until a massive stockpile is used up.
As debate about mining heated up in Malaysia, China started getting more of its bauxite from Australia. The purchasing costs didn’t change much for China, because of Australia’s low production costs, but Chinese aluminum producers had to make adjustments to handle Australia’s grade of ores.
China’s imports of bauxite from Malaysia in the first half of this year were nearly 34% lower than the same time last year at 5.22 million tons, according to government data. But China’s total bauxite imports were growing, and it shifted sources: In the first seven months of this year, Australia’s share of the China’s total bauxite imports shot up to 40%, followed by that of Guinea, on the west coast of Africa, at 19%. Malaysia’s share fell to 18%, according to Laura Zhai, director in Fitch Ratings’ Corporate Group.
Meanwhile, as tension over mining grew in the Philippines, China returned to Indonesia. It couldn’t buy nickel ore directly because of the ban so instead it bought nickel pig iron, refined domestically from nickel ore, and brought that home to be made into stainless steel.
China has been facing a challenge akin to a game of hopscotch between countries to source its mineral ores—one that isn’t expected to end soon.
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