The Indonesian government is implementing a ban on the export of unprocessed ore, which will particularly impact global nickel and bauxite supplies, but is allowing leeway for certain minerals mined by two U.S. corporations.
After a meeting with his economic team until late on Saturday, President Susilo Bambang Yudhoyono signed a government regulation that enforces the 2009 Mining Law, which requires a ban on the export of unprocessed minerals starting Jan. 12.
The ban aims to force miners to process ore domestically, thus, creating added value for the country’s huge mineral reserves along with more jobs and tax revenue.
As one of the world’s top suppliers of bauxite and nickel, Indonesia’s halt in the export of the two minerals could mean a loss of $2 billion annually in revenue.
The policy will also shake up the global nickel and bauxite market, as China received 71 percent of its nickel and bauxite from Indonesia in 2012, according to RBC Capital Markets as quoted by Bloomberg.
While reports suggest that China has stockpiled a one-year supply of bauxite and nickel, it remains to be seen how it will impact, in the long run, factories that use the minerals to make stainless steel for household appliances and cars.
“Nickel, bauxite, chromium, gold, silver and tin are required to be fully processed before export. It’s no longer negotiable,” said the director general for mineral and coal at the Energy and Mineral Resources Ministry, R. Sukhyar.
“Copper concentrate and intermediary products such as iron sands, iron ores, manganese, zinc and lead can be exported,” said Sukhyar.
The allowance of the export of unprocessed copper was included at the last minute, and was seen as kowtowing to US mining giants Freeport McMoRan Copper & Gold and Newmont Mining Corp., which extract a combined 97 percent of the country’s copper.
“We cannot have an across-the-board ban as it will cause huge unemployment. There is leeway for certain types of ore,” said Energy and Mineral Resources Minister Jero Wacik.
He also said that a full ban would undermine the country’s exports, eventually widening the current-account deficit, which would affect the rupiah.
Jero said that aside from Freeport and Newmont, more than 60 other companies would be allowed to continue to export unprocessed minerals as they had provided assurances to the government that they would build the necessary smelters.
However, no deadline has been set for the companies to comply with the policy.
According to Industry Minister MS Hidayat, the government would impose export taxes to deter mining companies from shipping semi-processed minerals overseas.
“The lower the purification or the processing level, the higher the taxes,” said Hidayat.
The government had previously set a deadline of 2017 for the companies to be able to export the semi-processed ore, but it was scratched during Saturday’s meeting.
The 2017 deadline had been proposed by the Energy and Mineral Resources Ministry as part of its attempt to ensure that mining companies would still move to build smelters after the government eased the implementation of the ban on raw ore exports.
“There’s no time limit any longer. However, we will control exports and impose duties, which will be progressive,” said Sukhyar. “As taxes rise, we expect unprocessed ores will no longer be economical for export and miners will start to process them.”
Indonesia accounts for 3 percent of the global copper supply, 18-20 percent of nickel and 9-10 percent of aluminum from bauxite, according to Goldman Sachs Group Inc. estimates as reported by Bloomberg on Sunday.
The ban policy has excluded coal. Indonesia is Asia’s largest producer of thermal coal.
The Indonesia Mining Association believes the policy was an “optimal” outcome for complying with the Mining Law.
“We haven’t received the regulation yet. But we believe it will not trigger unemployment as mining companies will have to add extra help to process their ore in order for them to be able to export,” said IMA executive director Syahrir AB.
By Raras Cahyafitri and Linda Yulisman
(The Jakarta Post)