By Lisa Reisman
Several months ago, my colleague Stuart wrote about a growing trend across several developing nations with significant mineral reserves - " Resource Nationalism." Its name gives itself away, but local ownership laws, royalties, windfall taxes, and super taxes suggest resource nationalism has risen in prominence, according to a 2011 Credit Agricole presentation - and with it, greater implications for metal and other commodity prices.
In addition to the above tactics, resource nationalism rears its head through the recent nationalization of private assets - as in the case of YPF Sociedad Anonima (NYSE:YPF), the biggest Argentinean oil company. But increasingly, we have seen one more disturbing trend en vogue in the metals and mining industry: The deployment or threat of metal export bans. These have come in the form of China rare earth export quotas; a broad stroke export ban of bauxite, iron ore, manganese, gold and silver, along with nickel, zinc and copper coming from Indonesia and a proposed ban on raw copper exports from Zambia.
Many countries want to create more local jobs, infrastructure and additional revenue for the government, sure. However, increasingly we're seeing the stated objectives of imposing export bans having more to do with domestic economic policy-making than anything else. In short, the federal governments of these countries seek to "upgrade" current mining initiatives by encouraging investment and exports of value-added processed minerals, as opposed to the raw materials.
Consider the following analysis from intelligence firm Stratfor on the rationale behind Zambia's proposal to ban copper exports, "compelling the foreign mining companies to process all raw copper within Zambia." Furthermore, countries that have threatened an export ban or have implemented one do so typically to either extract more fees or taxes from the mine operators and/or to generate more investment in value-added processing capability.
From a geopolitical commodity risk perspective, export bans have particularly large consequences on buying nations with a dependency on that one particular country for the commodity placed under the ban (yes, we'll get to China's rare earth export ban in a moment).
A total export ban would not only impact copper prices globally (as Zambia has the largest copper reserves on the African continent and the sixth-largest global copper reserves), but could also create new challenges for procurement professionals from a supply risk management and commodity risk management perspective.
All of this begs the question - will metal export bans achieve the desired outcome on behalf of these governments seeking to implement them?
To be continued