On Sunday, the Indonesian government put into effect a ban on exporting raw ore from the mineral-rich country.
The ban - which included a last-minute exemption for the copper industry - was greeted by howls from the international mining industry. As the world's largest exporter of nickel, thermal coal, and tin - and home to the world's largest gold and second-largest copper mine - Indonesia plays a crucial role in the international supply chain of minerals.
Indonesian President Susilo Bambang Yudhoyono's eventual exemption of 66 mining companies that committed to building smelters in Indonesia and processing ore domestically included mining heavyweights Freeport Indonesia and Newmont Nusa Tenggara, which together produce 97 percent of Indonesia's copper.
However, the ban could still potentially have a large impact on markets for nickel and bauxite - especially for China, which buys most of Indonesia's exports of these two minerals. Nickel is used to produce stainless steel, and bauxite is processed into aluminum.
"In the longer run, if the ban sticks, it could mean a tighter market [for bauxite and nickel] starting next year," said Hong Kong-based commodities analyst Nate Taplin of GaveKal Dragonomics, a market research consultancy that focuses on China. In 2012, Indonesia exported 48 million metric tons of nickel ore, 43 million of which went to China, according to Nikhil Shah of London-based metals market analyst CRU Group.
Indonesian ore is of a higher grade than what is available in the Philippines, so it will be difficult to replace.
- Nikhil Shah, CRU Group
Dragonomics estimates that, in anticipation of the ban, Chinese stainless steel and aluminum producers have stockpiled a six-month supply of nickel and up to a year of bauxite. CRU Group estimates that China has a nine-month supply of nickel stowed away.
If the government does not ease purity levels or instate pro-industry regulations, the implications to the price and supply of nickel ore and bauxite could be serious.
Chinese firms will look to substitute supply from Indonesia elsewhere, like the Philippines. Nickel Asia, a nickel mining company in the Philippines, saw its shares rise to a six-month high in response to the ban.
"Indonesian ore is of a higher grade than what is available in the Philippines, so it will be difficult to replace," said Shah.
Implications at home
The export ban stems from a law passed by Indonesia's parliament in 2009 that gave mining companies five years to build domestic smelters to process ore before export to global markets. The policy was intended to add value to Indonesia's mineral exports and create jobs.
Since the passage of the law, however, few companies have built processing facilities, betting that the Indonesian government would not enforce the law. The ban was put into effect on Sunday, but the administration has tried to salvage industry confidence and modify some regulations, leaving the industry in a state of uncertainty.
First it was announced that the minimum purity level for copper exports would be set below what the major copper producers currently export. Then the president issued exemptions for 66 companies. But R Sukhyar, director general of minerals and coal for Indonesia's Ministry of Energy and Mineral Resources, said no exemptions would be made for nickel, bauxite, chromium, gold, silver and tin; they must be fully processed before exporting.
The mining industry had lobbied fiercely against the ban. Rozik Soetjipto, the CEO of Freeport Indonesia, which operates the largest gold mine in the world, claimed it would force the company to lay off half of its 15,000 Indonesian workers and slash production by 60 percent, which would result in $1.6bn in lost revenue for the government. The Indonesian Mineral Entrepreneurs Association reported that the lead-up to the ban already caused 30,000 mining industry workers to lose their jobs.
Critics of the ban added that domestic smelting capacity is insufficient to handle the vast amounts of minerals that are extracted and sold in international commodity markets.
Things did not have to come to this, said Sutan Bhatoegana, the head of the parliamentary committee that wrote the 2009 mining law. Back in 2009, "we said that we should give them seven years, the government said let's give them five", he told Al Jazeera at the National Legislature building last week.
There's a big push in China to reduce domestic air pollution right now ... there could potentially be some overlap of interests, if China is able to export some of its pollution to Indonesia by investing in smelters there.
- Nate Taplin, commodities analyst
With a large current account deficit and a weak currency, the law's implementation will likely exacerbate Indonesia's economic troubles, at least in the short term. The rupiah was Asia's worst-performing currency in 2013, depreciating to a five-year low against the dollar. The current account deficit, in excess of $30bn in 2013 (the official number has not yet been announced), became the government's biggest economic concern.
In recent months Indonesia has posted a trade surplus, but economists worry that the ore export ban could cause the surplus to erode. The country's policymakers are already cautious about capital flowing out of the country as a result of the US Federal Reserve tapering its stimulus programme.
But supporters say the ban's impact on long-term economic stability will be worth the short-term pain. Last week, Finance Minister Chatib Basri told the press that the policy would lead to a trade surplus in 2016-2017 once new processing facilities become operational. Parliament members from opposition parties echoed his optimism. Bobby Adhityo Rizaldi from Golkar referred to the short-term losses as "a fever" the country has to endure before it can get better, while Muhammad Najib from the Amanat Nasional Party called the policy "a test of our commitment to our natural resources".
An environmental boon?
On the eastern Indonesian island of Sulawesi, at least 13 Chinese freighters loaded with nickel ore are stalled in port, and nickel mining operations have halted in many locations on the island. In the past decade, nickel mining has surged in this remote region, so environmentalists were relieved with the reprieve resulting from the ban.
However, they understand that the halt is only temporary, said Susiyanti Kamil, director of the Southeast Sulawesi regional branch of the Indonesian Forum for the Environment (Wahli).
Kamil is concerned about the damage that smelters will have in this environmentally fragile region. She has already received reports of respiratory problems from the region's only running smelter, operated by the national mining company PT Aneka Tambang.
China's concerns about air pollution may complement Indonesia's ore export ban and cause even more problems for the residents of Sulawesi. Chinese companies and the Indonesian government have been discussing plans to build billions of dollars' worth of nickel and bauxite smelters in Sulawesi and Kalimantan.
Indonesia already faces many environmental problems, including high rates of deforestation from the timber and palm oil industries. In the debate over the export ban, few have discussed another potential environmental issue it could cause: air pollution resulting from a big increase in mineral processing facilities.
"There's a big push in China to reduce domestic air pollution right now and iron/steel production, fuelled by coal power, is one of the main culprits," explained Taplin. "So there could potentially be some overlap of interests, if China is able to export some of its pollution to Indonesia by investing in smelters there."
www.benlatestnews.com
0 comments:
Post a Comment