Indonesia Bans Ore Exports in Compromise Push for Smelting

Indonesia Bans Ore Exports in Compromise Push for Smelting

Indonesia’s ban on mineral ore exports will cut global nickel supplies while allowing Freeport-McMoRan Copper & Gold Inc. (FCX) to keep exporting copper concentrates. Nickel climbed to the highest level in two weeks.Indonesia’s President Susilo Bambang Yudhoyono signed a regulation implementing the ore ban, Energy and Mineral Resources Minister Jero Wacik told reporters on Jan. 11, after a meeting of government ministers in West Java. The rule, which went into effect after months of wrangling, prohibits all raw ore exports and permits shipments of minerals that are processed or refined in the country.

While the decision eases concern copper shipments will be disrupted, it’s pushing up nickel prices as Indonesia is the world’s biggest mined producer. The ban is part of a wider policy in Southeast Asia’s largest economy to boost state revenue by turning Indonesia from an exporter of raw commodities into a manufacturer of higher-value products.

“The law should clearly be bullish for nickel, as we should expect to see significant lower volumes of ore flow from Indonesia to China,” David Wilson, an analyst at Citigroup Inc. in London, said after the decision.

The country accounts for 18 percent to 20 percent of global nickel supply, 9 percent to 10 percent of aluminum from bauxite and 3 percent of copper, Goldman Sachs Group Inc. estimates.

Futures Advance

Nickel futures in London jumped as much as 2.4 percent to $14,190 a ton today, the highest level since Dec. 30, after gaining 3.3 percent on Jan. 10. Chinese ore stocks will become more valuable and many producers will not be able to use lower-grade ore from the Philippines as an alternative, said Wilson.

Shares of Nickel Asia Corp., (NIKL) which accounts for about a third of Philippine output, climbed as much as 4.1 percent to the highest intraday level since Nov. 5. Alumina Ltd. jumped as much as 5.8 percent in Sydney trading on prospects for increased demand after Indonesia banned bauxite exports.

The rule reinforced a 2009 mining law that called for greater state benefit from the industry, local metals processing and reduced foreign participation. The government first limited ore exports in 2012 and then faced a series of legal challenges, leading to policy flip-flops on implementing the ban that created uncertainty over whether it would go ahead.

Newmont Mining Corp. (NEM) and Freeport, which runs the world’s second-largest copper mine in eastern Indonesia, can keep exporting concentrates, said Wacik, in a turnaround from government comments last year that called for a halt to exports of concentrates, a basic product mix of copper and gold ores that have been crushed, milled and concentrated.

Freeport Permit

More than 60 companies that are planning to process ore domestically will also be allowed exports, Wacik said, without giving the purity levels that need to be met. Details will be published later, he said.

PT Vale Indonesia (INCO) and PT Aneka Tambang, which mine nickel and have some processing facilities in Indonesia, climbed 5.4 percent and 2 percent today after Wacik’s comments.

Freeport Indonesia has concentrate shipments set for Spain and the Philippines and expects export permits to be issued soon, its President Director Rozik Soetjipto said yesterday. Newmont’s local unit is operating normally while it waits for the official regulation document, spokesman Rubi Purnomo said.

The Energy and Mineral Resources Ministry proposed Jan. 8 companies be allowed to continue shipping mineral concentrates for three years. The minimum level of copper in the concentrates may be set at 15 percent, according to Soetjipto, less than the percentage produced by Freeport and Newmont in Indonesia.

Ore Stockpiles

“Indonesia appears to be willing to allow miners who do some degree of processing or have definite plans for smelters in place to keep exporting but is still acting tough with the little guys,” Keith Loveard, a risk analyst at Jakarta-based Concord Consulting, said yesterday, pointing to around 4,000 companies with mining business licenses.

Aluminum Corp. of China Ltd., the nation’s biggest producer of the metal, said Jan. 10 that it stockpiled bauxite before the ban even as it expected the Indonesian curbs to be diluted because of the potential economic consequences. Indonesia will re-open exports as it has such a big impact, according to Li Haiming, president of the Hong Kong unit.

The government may not backtrack on bauxite and nickel as it is confident processing plants will come online, said Shaun Levine, an analyst at consultancy Eurasia Group in Washington.

Nickel Prices

Indonesia’s nickel-ore exports are mostly in the form of laterite with 1 percent to 2 percent nickel, according to RBC Capital Markets. In China, the ore is processed into so-called nickel pig iron, an alternative to the refined metal.

Chinese stockpiles of nickel ore are large enough to sustain the output of nickel pig iron through until at least the final quarter of this year, RBC Capital Markets said on Dec. 19, citing an estimate from researcher Wood Mackenzie. Indonesia’s Industry Minister M. S. Hidayat told reporters in Jakarta on Jan. 8 that China has 20 million tons of nickel ore in reserves ahead of the ban.

Nickel may average $15,500 this year, according to an ABN Amro Bank NV report on Jan. 3 that cited the curbs in Indonesia and improved demand spurred by a global economic recovery. Last year’s average was $15,081 as prices touched a low of $13,205 on July 9. Refined nickel prices fell 19 percent on the London Metal Exchange in 2013, dropping for a third year amid a glut to post the worst performance among major base metals.

Export Revenue

The curbs could worsen Indonesia’s 2014 current-account position by as much as 0.3 percent of gross domestic product, Citigroup Inc. said last month, while Nomura Holdings Inc. said it will cost at least $5 billion in export revenue. Nickel and bauxite account for about 48 percent of total mineral exports, said David Sumual, economist at PT Bank Central Asia in Jakarta.

If the ore ban had been implemented in full, the current-account deficit would increase by about 0.6 percent of GDP, Sumual said. Persistent trade and current-account deficits last year made the rupiah Asia’s worst-performer in 2013.

“I think the rupiah has priced in for the total ban, meaning 0.6 percent of GDP, while the impact of the ore ban on the current-account deficit should only be 0.25 percent of GDP,” Sumual said.

The rupiah surged 1.1 percent to 12,033 per U.S. dollar as of 9:55 a.m in Jakarta today, the most in six weeks. The currency will probably be the main winner given the the export ban was diluted, Dariusz Kowalczyk, a senior strategist at Credit Agricole CIB in Hong Kong, said in a research note today.

Job Losses

The final decision reduced the impact of the rule on the country’s mining industry and economy ahead of national elections this year. Yudhoyono cannot run for a third term and has no clear successor, with Hatta Rajasa, the coordinating minister for the economy, Trade Minister Gita Wirjawan and State-Owned Enterprises Minister Dahlan Iskan among those vying to be potential presidential candidates.

“It is stereotypical of President Yudhoyono’s leadership style these last few years, namely to wait until the last second to decide on something,” said Eurasia’s Levine. “His decision to allow exports of some minerals and avert a possible economic catastrophe when the country can hardly afford it, is commendable.”

As many as 800,000 jobs may be at risk from the ban on shipments, the Indonesian Chamber of Commerce and Industry said on Dec. 16. It remains to be seen whether the government will be prepared to deal with the domestic fallout, Loveard said.

“There is also the potential for more challenges in the courts so it is unlikely that this is the end of the story,” Loveard said.

To contact the reporters on this story: Yoga Rusmana in Jakarta at; Neil Chatterjee in Jakarta at


Indonesia’s Watered-Down Ban on Ore Exports Takes Effect

Government Balances Domestic Political Pressure With Need to Retain Jobs in Key Industry


Jan. 11, 2014 9:55 p.m. ET

JAKARTA, Indonesia—Indonesia’s long-awaited ban on the export of mineral ores went into effect Sunday, but only after last-minute meetings left room for major exceptions as the government balances domestic political pressure with economic reality.

Energy Minister Jero Wacik told reporters late Saturday following a meeting of ministers that the export of mineral ores is no longer allowed, as required by a 2009 law “to enhance the value” of Indonesia’s giant mining industry.

He said, however, that companies “that have been processing and will process their minerals” in Indonesia will be allowed to continue operations. He said details would emerge in coming days.

That statement squares with comments last week by R. Sukhyar, the ministry’s director general for coal and minerals, that companies with clear plans to process ores domestically would be allowed to continue exporting unprocessed minerals as long as their plans, such as building smelters, are progressing.

Mr. Wacik’s suggestion of exceptions likely means immediate change isn’t in store for dozens of major mining companies, many of whom have broken ground, if tentatively, on processing plants. Currently, only a small amount of the ore mined in Indonesia is refined here.

Hatta Rajasa, coordinating minister for the economy, added that the export of mineral concentrates will be allowed, giving a break to some of the largest mining companies operating in Indonesia, including U.S.-based Freeport-McMoRan Copper & Gold Inc.FCX +1.29% and Newmont Mining Corp. NEM +2.59% , which also produces copper and gold.

“Concentrate is not mentioned in the 2009 mining law,” Mr. Rajasa said.

Ore generally is the raw material dug from mines, while concentrates have undergone some amount of processing.

Mr. Wacik said a key consideration in the last-minute decisions affecting the ban was employment, “to avoid massive layoffs.”

Freeport and Newmont employ tens of thousands of workers in their eastern Indonesian operations. Both had said the ban could force them to lay off thousands and halt some operations, costing them and the country billions of dollars in lost exports.

Rozik B. Soetjipto, head of Freeport’s Indonesia entity, told The Wall Street Journal on Sunday that the company hadn’t received official word that concentrates exports are still allowed, but that “it’s something that the company expects.”

He said almost all of the company’s exports, of copper and gold, are in concentrate form.

In the case of other minerals such as nickel and bauxite, many miners in Indonesia export raw ore without any refining domestically.

The last-minute decisions would appear to be a face-saving move for Indonesia, which has long said that its law calling for domestic refining by 2014 is mandatory and immutable. An outright ban on exports would hamstring an industry that brings in billions of dollars annually to the government of Southeast Asia’s largest economy.

In recent months, the energy ministry sought to soften the impending ban but met strong opposition in the legislature. Many lawmakers think foreign mining companies have enjoyed too much control of the sector, mining experts say, which has led to the passage of laws and regulations designed to keep more profits at home.

The government “thinks it could have struck a harder bargain with foreign miners, especially in the 2009 law, because after 2009 they had another 2½ to three years of commodity boom,” said Bill Sullivan, a legal adviser to major mining companies in Jakarta.

The government wants Indonesia to join the ranks of advanced economies and add value to its industries. “This has to do with how the country survives in the long term,” said Finance Minister Chatib Basri in a recent interview. “We don’t want to fall into the middle-income trap.”

Mining is one of Indonesia’s largest industries, exploiting huge reserves of nickel, copper, tin and other minerals. For years, it has been the economy’s single-largest draw of foreign direct investment.

But uncertainty about the export ban, weak commodity prices and a lack of power infrastructure in remote regions have damped interest in building new smelters, which can cost hundreds of millions of dollars.

Investment has also declined in part, analysts say, because mining companies see Indonesia as liable to changing rules midgame. The government recently forced some foreign mining companies to cut stakes in local mines to minority shares and is pressing some of the largest companies to renegotiate decades-old contracts.

Last year, the Canadian research organization Fraser Institute ranked Indonesia last of 96 mining jurisdictions world-wide for investor sentiment, citing a climate of uncertainty.

The effects of the proposed ban have been far-ranging, with countries like China stockpiling minerals such as nickel in anticipation of a supply cut. Indonesia is the world’s second-biggest producer of nickel ore.

The prospect of a reduction in nickel supplies sent futures prices soaring 3.6% a metric ton on the London Metal Exchange Friday, while the LME’s three-month copper contract rose 1.2%.

Many experts had assumed Indonesia would ease its stance due to the lost revenue, all the more dire after a year of trade deficits, heavy current-account deficits and a plunging currency.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: