Philippines courts investors for ‘China-free’ nickel supply chain

The Philippines is scouting for western investment to further develop its nickel reserves, pitching itself as an alternative to the China-dominated supply chain for the critical battery metal.

The country, which is the world’s second-largest producer of nickel, is seeking a critical minerals agreement with the US and investment from foreign companies to build more refining plants, as it taps into rising concerns over China’s control of the electric vehicle ecosystem.

“There is room now for the Philippines to be a significant player for batteries,” Ceferino S Rodolfo, under-secretary of the Department of Trade and Industry, told the Financial Times in an interview. 

The Philippines’ nickel output is just a fraction of top player Indonesia, where government officials say 90 per cent of the industry is controlled by Chinese companies.

But unease about the concentration of nickel supply in the hands of Indonesia and China — as well as low prices that have curbed output from other producers — have prompted buyers to seek other sources of the commodity, which is also a critical steelmaking ingredient.

The US, UK, Australia, Japan and South Korea are among countries that have shown interest in investing in the Philippine nickel industry, Rodolfo said. But so have Chinese companies. 

“It’s a race between China and the US,” he said, noting that the Philippines had “a really strong argument to go for a non-Chinese investor so that we can be the supplier of non-Indonesian, non-Chinese nickel”.

The Philippines’ push also comes as it seeks to build closer economic ties with the US and its allies amid escalating tensions with Beijing in the South China Sea.

Last week, Chinese coast guard vessels rammed and boxed in Philippine military resupply boats, an incident that left one Philippine soldier severely injured.

The Philippines wants to sign a critical minerals agreement with the US, which would make it eligible for tax credits. It has also asked to join an existing agreement between the US and Japan, Rodolfo said.

But no deal is on the table for now due to US reluctance to sign an agreement in the middle of an election year, officials in Manila said.

The Philippines is also aiming to produce “greener” nickel with the help of investors by using renewable energy to power smelters, Rodolfo said — distinguishing it from Indonesia, which relies on coal-fired power plants extensively, earning it a reputation as a producer of “dirty” nickel.

But Washington is concerned about high energy costs, Manila’s envoy to the US, Jose Manuel Romualdez, told the FT. “One of the main hurdles right now is energy . . . We need to be able to establish a better, more cohesive type of energy that is cheaper,” he said. 

Manila is prepared to invest in cheaper and cleaner energy options, and is considering a combination of hydro, solar and wind power and natural gas, he added.

The Philippines currently has two nickel processing plants, both operated by Nickel Asia Corp, in which Japan’s Sumitomo Metal Mining is the biggest shareholder.

Indonesia accounts for 57 per cent of global refined nickel production — 4.5 times more than the Philippines in 2023 — and its share is forecast to rise to 69 per cent by the end of the decade, according to Benchmark Mineral Intelligence. Its reserves also far outpace the Philippines’: with 55mn tonnes, Jakarta has 11 times more nickel, according to the US Geological Survey.

Meanwhile, nickel mines in Australia have been shut down due to lower prices — which have slumped 23 per cent over the past year. Production in New Caledonia, a French overseas territory, has also been disrupted by political unrest.

Adam Webb, cathode product director at Benchmark Mineral Intelligence, said raising financing in the current low-price environment would be a challenge for the Philippines.

He said tax breaks and policies that favour non-Chinese companies could attract investments to the Philippines, which could prove a viable alternative for Washington to de-risk its nickel supply chain.

“For the west, the Philippines offers an opportunity to diversify away from the China-dominated Indonesian nickel industry and mitigate against the risks associated with nickel’s growing supply concentration in a single country,” he said.

Additional reporting by Demetri Sevastopulo in Washington