SPOTLIGHT: Indonesia’s ore export ban – the effects and implications

The Indonesian ore export ban kicked in at midnight on January 12. Here, Metal Bulletin offers an overview of how it is being implemented and the ramifications.

The Indonesian ore export ban kicked in at midnight on January 12. Here, Metal Bulletin offers an overview of how it is being implemented and the ramifications.

Starting midnight January 12, the Indonesian government enacted long-anticipated regulations restricting or banning the export of unprocessed ores. But the signing of the export curbs by President Susilo Bambang Yudhoyono did not end uncertainty over how exactly they will be implemented. Further details emerged during the week, as markets – especially nickel – assessed what the implications might be for supply and prices. 

Among the minerals banned, the big losers were nickel ore and bauxite, while copper clinched some leeway.

An eleventh-hour adjustment for copper will allow miners such as Freeport McMoRan Copper & Gold and Newmont Mining to continue shipments. The regulation will allow exports of copper concentrate above or equal to 15% metal content. About 66 companies that have plans to process domestically will be allowed to export as well, Jero Wacik, energy and mines minister, told local reporters in Indonesia.

No concentrate exports, however, will be allowed after 2017.

Indonesia’s mining ministry regulation has defined “what constitutes processing?” for exports of minerals including copper, nickel, bauxite, iron ore, lead, zinc, silver and gold.

The Indonesian mining industry had lobbied hard for a case-by-case approach for each mineral but was unable to convince the government to agree to minimum processing of bauxite at 45% or allow high-grade bauxite exports. It did not have any luck with nickel ore either.

Details of a progressive export tax have also emerged. For the miners which can continue to export processed minerals until 2017, it means export duties will rise to 60% by the second half of 2016, from 25% or 20% at present.

Nickel prices rose throughout the week, reaching a high (at least until the time of writing), of $14,700 per tonne on Thursday January 16. 

China’s nickel pig iron industry, the biggest customer of Indonesian ore, is expected to see slowing growth in 2014, research firm Antaike said. 

But China’s stocks of over 24 million tonnes of nickel ore are expected to cushion the impact of the ban.

What does this mean for nickel pig iron and the competitive advantage of China’s stainless producers?

In Europe, nickel premiums moved up on January 14 as sentiment improved following confirmation of the Indonesian situation. 

An eventual increase in Chinese stainless costs due to lack of material could relieve some pressure put by Chinese imports on US producers, market participants have said. 

And so the Chinese stainless steel market got a lift, with offers rising on January 14, in anticipation of higher nickel prices.

Indonesian nickel miners now need to rethink their production strategies. State-owned miner PT Antam has announced plans to stop ore exports, a decision that will bring down its annual production in 2014. Ibris Nickel has also stopped exports.

Various mining companies, including Freeport McMoRan Copper & Gold await details on how the ban will be implemented. With Indonesia’s elections looming, the longevity of the ban remains to be seen. The Indonesian ministry of energy and mineral resources and the ministry of commerce have set up a special team to oversee the export of minerals from the country.

Exports of minerals were at a standstill almost a week into the ban, and industry bodies are continuing to lobby the government to reconsider the progressive export tariff, which makes the export of some processed minerals unviable and does not allow miners enough time to beneficiate or build smelters in the three years before the full-fledged ban comes into effect.

The details on how a fund, escrow or not, will be set up by those companies looking to build refineries and smelters in the country remain to be seen. What amount of money will be held for each smelter/company? Who will decide the amount? How will it be monitored? These are just some of the many questions being asked.

And looking ahead, the next major development may be the parliamentary elections coming up in April, followed by the presidential elections in July. The government may believe a bout of resource nationalism will be good for the polls. But many analysts expect the regulations to be eased again to avoid a politically damaging short-term fall in export revenues.

Shivani Singh 
shivani.singh@metalbulletinasia.com
Twitter: @ShivaniSingh_MB 

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