Indonesia bans raw ore exports

The banning of raw ore exports looks set to shake up the supply chain of minerals worldwide.

Indonesia bans raw ore exports

World Bulletin / News Desk

On Sunday, Indonesia banned the export of raw ore to other countries as it seeks to develop its own smelters in order to process its own ore.

The ban includes the ore for many mineral that are found in the country, including nickel, thermal coal, tin and gold. Although a last-minute exemption was made for copper, Indonesia’s new measures looks set to shake up the world’s mineral supply chain.

Indonesian President Susilo Bambang Yudhoyono's exempted mining firms Freeport Indonesia and Newmont Nusa Tenggara, which together provide 97% of Indonesian copper, after they promised to develop their own smelters. As Indonesia has the second biggest copper reserve in the world, this was good news for those in the copper industry.

However, the same cannot be said for the gold industry, as the new curbs will prevent ore from leaving Indonesia, which possesses the world’s largest gold mine.

The nickel and bauxite markets will also be affected. China will feel the biggest shockwave as they are Indonesia’s number one customer for these minerals, which they use to make stainless steel and aluminum. In 2012 China purchases 43 million metric tons of nickel ore from Indonesia out of a total of 48 million metric tons. However, China has been well-prepared, stockpiling 6 to 9 months worth of bauxite and nickel in advance.

China is not short of providers, however. In the event of being unable to buy from Indonesia, China looks likely to turn to Philippines firm Nickel Asia, which has seen its stock hit a 6-month peak after the ban was introduced. On the other hand, China may be reluctant to make the move, as Philippines nickel ore is not as high-quality as Indonesian nickel ore.

In the end, it seems that Indonesia’s five-year plan that started in 2009 to get mining firms to develop their own smelters in order to add value to its minerals has backfired, as very few firms have actually met the deadline. Despite making some changes to the regulations, Indonesia remains determined to enforce the ban in order to get firms to develop smelters. Mining industry lobbies, however, have objected to government plans.

Freeport Indonesia claimed that enforcing the smelter plan would have left them with no choice but to release half of its 15,000 workers, leaving them with a 60% loss in production. Before the ban could come in place, 30,000 miners had already lost their jobs, according to the Indonesian Mineral Entrepreneurs Association.

Although boasting of a trade surplus, Indonesia’s currency was the worst performing Asian currency in 2013, and economic experts expect that surplus to vanish after the implementation of this ban. Indonesian Finance Minister Chatib Basri on the other hand, insisted that the setbacks would only be short-term and that the surplus would return by 2016-2017.

Güncelleme Tarihi: 20 Ocak 2014, 17:05