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Indonesia gearing for mineral export ban

Keywords: Tags  Indonesia export ban, bauxite, nickel, copper, alumina, iron ore, Shivani Singh


SINGAPORE — A last-minute presidential or Supreme Court intervention might add another dimension to the much talked about and hugely convoluted Indonesian minerals export ban, which is slated for a Jan. 12 rollout but isn’t yet set in stone.

The argument about the need for resource nationalism isn’t unique to Indonesia, but the country still needs infrastructure—including roads, ports and energy plants—to be able to attract more investment in the downstream industry.

If the ban goes through, shipments of minerals—including nickel ore, copper, bauxite and gold—will be affected to varying degrees.

The government will issue a regulation before Jan. 12 noting the minerals that can be exported, but it isn’t yet clear if big producers like Freeport-McMoRan Copper & Gold Inc., Phoenix, and Greenwood, Colo.-based Newmont Mining Corp. will be able to ship copper concentrates after this date.

There have been various lobbying efforts by companies and officials alike to delay the ban, clarify it or allow for exports if there were plans for building downstream plants.

Three broad scenarios—a complete ban on Jan. 12, a partial ban or postponing the ban—are being widely discussed in the market.

In December, the Indonesian parliament voted against changing the 2009 Mining Law and said the export ban would proceed as scheduled.

Some participants believe the country will halt mineral exports even with the great risk to its economy.

"It seems unlikely that anything can be changed so close to the ban date," one market participant said, adding that the ban will support prices for such metals as nickel.

The nickel market would be wrong to assume that long-awaited restrictions on ore exports from Indonesia will not materialize, David Wilson, Citigroup Inc.’s director of metals research and strategy, told AMM sister publication Metal Bulletin in October.

Time and again market participants have drawn attention to the ramifications for the country’s economy, already under pressure from a depreciating currency.

"The government will lose 45 percent of $8 billion ... just from Freeport and Newmont operations in Indonesia," according to Syahrir Abubakar, executive director of the Indonesian Mining Association.

Income from ore exports is expected to be $10 billion in 2013, and the proceeds from mining and metal exports account for about 6.6 percent of the national budget, Soemantri Widagdo, adviser to Indonesia’s industry ministry, said in November at Metal Bulletin’s 3rd Asian Bauxite and Alumina Conference in Singapore.

The Indonesian ore export ban would hurt the country’s trade and current account deficits, and also put pressure on the Indonesian rupiah, which fell to a five-year low of 12,213 vs. the dollar on Dec. 20 and declined more than 20 percent for the year.

This is adding to the pressure on the country to reassess its decision on the ban.

The upcoming parliamentary elections in April and presidential election in July mean that issues about the country’s economic strength will continue to be heated.

"I think an all-out ban will probably go ahead in January," one analyst said, "but with the elections later in the year they will have to allow for exports. In the short term, this will create tightness, especially in nickel, but prices will go up, so that is the upside."

The likelihood of a partial ban is much higher, with Indonesian government officials reportedly saying that the government will ban exports of minerals by miners without smelters but will regulate shipments from miners who process ores.

Freeport, owner of the Grasberg copper-gold mine in Indonesia, has said it is working with the country’s government to understand the implications of the ban.

On the other hand, PT Newmont Nusa Tenggara (PTNNT), Indonesia’s second-largest copper exporter, has reiterated that it already adheres to the country’s mining law as it processes copper ore into concentrates.

"While our contract of work guarantees our right to export copper concentrate and even though PTNNT’s operation complies with the requirements of the Mining Law, we are prepared to take other reasonable steps to support the policy," PTNNT president director Martiono Hadianto said in a statement Dec. 10.

"While still somewhat vague, the inclination of Indonesian government officials to at least address copper producer concerns suggests that copper concentrate exports may not be affected to the same extent as nickel ore or bauxite exports," Barclays Capital Plc analysts said in a note to clients in December.

This case-by-case approach has been advocated by market participants in Indonesia as well.

By selling copper concentrate, the country is able to capture 93 percent of the ultimate value of the metal, as only 7 percent of the value chain can be captured in the smelting and refining stage, Widagdo said.

By selling bauxite, Indonesia can only capture 5 to 8 percent of the ultimate value, whereas 95 percent of the value chain lies in smelting and refining.

In nickel, only 20 percent of the value lies in the mining and processing stage, whereas the remaining 80 percent is in the refining stage, Widagdo said.

Others believe that a tax increase is more likely than a complete halt of raw material shipments.

The consensus, though, seems to be that minerals like nickel and bauxite are at greater risk than copper.

PT Aneka Tambang Tbk, Indonesia’s largest bauxite miner, has said it will follow government regulation and stop exporting minerals as of Jan. 12.

As for nickel, prices are at least set for a short-term gain, with the Philippines—the other big exporter of nickel ore—unequipped to make up the shortfall from Indonesia.

As stakeholders lobby the government to reconsider its decision, a stay order by Indonesia’s Supreme Court or an intervention by president Susilo Bambang Yudhoyono calling on parliament to review the Mining Law could delay its execution.

Indonesia’s Mining Association is petitioning the country’s highest court for more clarity on the legal wording of the mineral export ban.

"We are still going to the Supreme Court to ask for legal opinion on whether the ban is allowed under the terms of a framework law passed in 2009," Abubakar said Dec. 26.

"We will also go to the constitutional court, as few articles of the law contradict each other and are against the constitution," he said, adding that the industry body is going to ask for the deletion of some articles under the law and the amendment of some other articles.

A version of this article was first published in AMM sister publication Metal Bulletin.


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