Resource Nationalism Could Further Choke Metal Supplies

Three of the most important metals surged on Wednesday due to a signal from the US President that he may not escalate the trade war with China. Gold hit a 10-month high just shy of $1,350 an ounce, copper was the highest it’s been for seven month, trading at $2.92 a pound, and iron ore extended earlier gains at $88 a tonne.

 

 

 

Trump reportedly said he could extend the March 1 deadline for raising US tariffs on Chinese imports if the two sides are making good progress on reaching a deal on the nearly one-year-old dispute.

“I can’t tell you exactly about timing,” BBC News quoted the President saying, when asked how likely it would be for the US to increase the duty on $200 billion worth of Chinese products from 10% to 25%.

“The date is not a magical date because a lot of things are happening,” he added, presumably referring to trade talks in Washington this week.

The China-US trade war started with import duties on aluminum and steel. Justifying the tariffs on national security grounds, the 25% tax on steel and 10% on aluminum were aimed at China for dumping cheap product into the States, thus lowering the prices of those metals and hurting American steel and aluminum producers.

While China was the obvious target, the steel and aluminum tariffs also wrapped in the EU, Mexico and Canada.

Tariffs are a blunt instrument in the toolbox of protectionist measures all countries have when negotiating trade agreements. There are other, more subtle ways of protecting local industries and keeping foreign companies out or at bay. In the mining business we call this resource nationalism. It has been a prevailing theme especially over the last few years as countries experience wider inequality, social unrest and often unsustainable levels of debt. Tapping a wealthy foreign mining company for more profits, or just expropriating the mine and kicking the company out, is often seen as the easiest way to fix a cash crunch, while at the same time appealing to nationalist sentiment.

As we know, nationalism and “populism” have become more and more prevalent – the election of Trump in 2016 being the ultimate expression of populism, despite Trump, the billionaire real estate tycoon, being the antithesis of the “everyman (or woman)” most populists go for.

While resource nationalism is among the worst things a mining company can encounter when investing in a foreign country (just ask Crystallex which fought Venezuela for years over a 2008 decision to expropriate its Las Cristinas gold project, finally winning a $1 billion settlement), it can also have an impact on metals fundamentals. If enough supply is taken out of the market due to government-imposed restrictions, prices of those metals will rise.

For example Indonesia’s 2014 ban on unprocessed ore exports helped support nickel and bauxite prices, which also tumbled when the ban was relaxed in 2017. In the Philippines, the government of hard-line President Rodrigo Duterte closed 23 mines in 2017, causing the nickel price to climb. Like Indonesia, the southeast Asian nation blocked the export of unprocessed minerals – preferring to process locally – but went further by banning mining in watersheds and forcing companies to seek legislative approval before operating.

This Editorial was produced in collaboration with Richard (Rick) Mills & www.aheadoftheheard.com

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