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RESOURCE NATIONALISM: Higher price for Indonesia’s ore

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The Indonesian ore export ban and mining export taxes for those companies that can export will most probably result in higher prices for Indonesian ores, as supply falls and sellers pass higher prices to buyers, sources told Metal Bulletin.

“In nickel’s case, many companies will have to cease producing, as they have no processing plans,” Priyo Pribadi Soemarno, former executive chairman of the Indonesian Mining Assn (IMA) said.

“Indonesian nickel supply will immediately fall. Most probably, producers will pass their costs on to buyers in the form of higher prices,” he said.

Bauxite miners will probably stop mining low-grade ores as a result of the ban being implemented, a producer in Riau said.

“The mining taxes will increase the cost of production for our ores. Indonesian bauxite ores are competitive only because they are cheap,” he said.

“If we raise prices, buyers will get bauxite supply from other parts of the world. We may stop mining [lower grade bauxite] because it’s just not worth mining it anymore,” he said.

The mining sector is unlike the manufacturing sector, as it is a “price taker”, Tony Wenas, deputy chairman of the IMA said.

“Manufacturers are price setters. They set prices according to their costs of production,” he explained. “Miners are price takers. We will take prices that are set by the market,”.

“If other demand and supply factors dictate that prices cannot go up, Indonesian producers will choose to absorb the mining taxes to keep their competitive advantages among other global suppliers,” he added.

Current profit margins still generally allow producers to do so, he added.

The decision to proceed with the ban and taxes ends three months of uncertainty, as Indonesia moves to seek higher return from its rich minerals and metals resources.

Megawati Wijaya
megawati.wijaya@metalbulletinasia.com

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