Indonesia tweaks mineral concentrate ban at 11th hour
Indonesia has sought to defuse a controversial mineral export ban
before its Sunday 12 January deadline, but still looks set to prohibit
more than $2 billion worth of annual nickel and bauxite shipments.
Mining
companies would be allowed to continue shipping mineral concentrates
for three years, easing concern that copper sales may be disrupted by a
ban on raw ores.
Under the proposed regulations, miners would
still be allowed to export copper, manganese, lead, zinc, and iron ore
concentrate until 2017.
Only shipments of processed minerals will be permitted and by 2017; there will be no more concentrate exports.
Tellingly,
this will likely choke off supplies of nickel ore and bauxite. The
ministry decided to keep the ban on nickel ore and bauxite because of
ample domestic smelters. Indonesia is the world’s top exporter of nickel
ore.
Indonesia's global production
Indonesia
accounts for 18-20% of global nickel supply, 9-10% of aluminium supply
from bauxite and 3% of copper supply, Goldman Sachs Group Inc.
estimates.
Indonesia shipped 41.5 million tonnes of nickel ores
in the first nine months of 2013, up from 29.4 million tonnes a year
earlier, World Bureau of Metal Statistics data show.
Exports were mostly in the form of laterite ore grading 1-2% percent nickel, according to RBC Capital Markets.
China sources Indonesian nickel ore and bauxite
China,
the world’s biggest consumer of nickel and aluminium, buys much of its
nickel ore and bauxite from Indonesia. It received about 71% of its
bauxite imports and 52% of its nickel ore purchases from Indonesia last
year.
The rules aim to boost the value of exports from
Indonesia, the world’s top exporter of nickel ore, thermal coal and
refined tin by legislating that mining companies, including foreign
owned, must process their ore before shipping it overseas, a measure
initially passed in 2009.
Last month, the mining ministry
forecast nickel production would tumble 78 percent this year compared to
2012, while bauxite would plummet 97 percent.
What would the ban mean?
It could be expected that nickel prices will rise as would bauxite prices if Indonesia follows through on its ban.
Ironically,
the ban could have a net negative effect as it could be argued that it
would lead to less foreign investment in smelters as companies have
hesitated to invest the hundreds of millions of dollars necessary to
build smelters due to sufficient global refining capacity, low commodity
prices, and Indonesian policy changes.
As a result, the ban could cause a significant decline in mineral exports for miners that do not have refining capacity.
