CHINA remains the benchmark for supply and cost strategy planning for the mining industry, an international expert said on Wednesday, citing that “metals demand is still highly exposed to Beijing and tied with the boom and bust of its construction industry.”
Although global consumption of key metals such as aluminum, copper, lead and zinc follows the rise and fall of the gross world product, computed as the combined gross national product of all countries, Julia Ralph noted that China is “eating up” more of the global consumption pie while contributing less to the global production mix.
China is a major buyer of metals copper, nickel and zinc.
“For instance, for nickel, China accounts for at least 50 percent of the total global consumption while contributing just around 30 percent into the combined global production of this metal,” Ralph said during the Mining Philippines 2015, a three-day international conference organized by the Chamber of Mines of the Philippines (COMP).
The World Bank “Quarterly Commodity Markets Outlook” released in July noted that “China’s share of world metals consumption more than tripled from 13 percent in 2000 to 47 percent in 2014.”
The report also cited a “slowing down of China’s metal consumption in the first half of 2015 due to weakness in construction, infrastructure spending, manufacturing, and industrial sectors.”
Even as global economic data shows an upward world-GDP trend, Ralph noted that the mining industry “should look at China to properly track the resource super cycle.
“We should be aware that while demand drives the resource super cycle, supply still dictates the price performance of these metals,” Ralph said.
She said that “through the slowest growth in demand the market may still see the best price performance” by managing supply.
Data shows that in 2000, the copper price on the London Metal Exchange (LME) stood at an average of $0.8070 US cents per pound, while world copper price as of September 2015 is at $2.43 per pound.
“Even if there is a common cycle in demand volumes, price implications are different, and cost curves matter,” Ralph noted.
COMP Executive Vice President for Legal and Policy Ron Recidoro echoed Ralph’s observation and suggested that “the Philippine government should help mining companies and investors deal with price implications and production cost planning by ensuring we have a stable and competitive playing field for the Philippine mining industry.”
He cited the need for the government to stabilize once and for all policies and regulations governing the mining industry, including those that cover permitting and the fiscal regime.
Mining companies and investors with prospects in the Philippines all agree that the current fiscal regime is already globally competitive, with mining projects under the Mineral Production Sharing Agreements (MPSAs) giving the government a 47 percent share and those under Financial or Technical Assistance Agreements (FTAAs), 61 percent, Recidoro noted.
A proposal by the Mining Industry Coordinating Council (MICC) to increase government
share to 71 percent is “too steep,” according to local and foreign mining companies and potential investors.
“We have one of the best, if not the best, mining law in terms of social, environmental and economic cost management from the point of view of investors… We just need to have a stable and consistent policy environment that will further strengthen us as a destination for mining investments,” Recidoro said.
“For the fiscal regime, the industry needs it to be simple and streamlined for ease in implementation, for instance reducing the current 18 revenue streams to only one or two,” Recidoro said.
Mining companies and investors cannot properly plan and track price implications and cost curves if the government continues to have a “fluctuating attention” to policies covering permitting and taxation of mining projects, he noted.
“The COMP, likewise, has been very vocal and consistent in saying that we need a fiscal regime that allows direct remittance of local government shares to host communities because this is the path to inclusive growth and a start of a real partnership for progress between mining companies and their host communities,” Recidoro said.