Indonesia slaps ban on mineral ore exports

Aluminum , Commodities , Copper , Gold , Indonesia , Iron ore , Lead , Metals , Nickel , Tin , Zinc Jan 13, 2014 No Comments

Indonesia ore export ban“The President has signed a decree stipulating that beginning January 12, all raw mineral or ores are banned from being exported,” Hatta Rajasa, the coordinating economic minister, said after a limited cabinet meeting led by President Susilo Bambang Yudhoyono at his private residence in the southern outskirts of the capital Jakarta.

Indonesia is the world’s biggest exporter of nickel ore, refined tin and thermal coal and home to the fifth-largest copper mine and the top gold mine. Mineral shipments totaled $10.4 billion in 2012, or around 5 percent of Indonesia’s exports, according to the World Bank.

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

The ban was mandated by the Mining Law passed by the Indonesian parliament in 2009, which included a provision that mineral ores must be processed at smelters in Indonesia starting yesterday.

Rajasa did not mention any exemptions, but said the decision took into account concerns about preventing mass layoffs, promoting regional economic development and enabling local mining companies to continue operating. He added that a number of regulations will be issued by ministries regarding the implementation.

In a last-minute changes at the weekend, the law was diluted to allow exports of copper, iron ore, lead and zinc concentrates to continue, giving a reprieve to United States mining giants Freeport McMoRan Copper & Gold and Newmont Mining, which together produce 97 per cent of Indonesia‘s copper.

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.

No such relief was offered to the nickel and bauxite industries, clouding the future for state-owned nickel miner Perusahaan Perseroan Aneka Tambang (Antam) and hundreds of other smaller miners.

Gayle Berry, base metals analyst at UK bank Barclays earlier this week said the ban “is the biggest supply risk facing base metals in a long time. The market has been very complacent, thinking the Indonesians would backtrack.”

Nickel climbed to the highest level in two weeks, leading gains in industrial metals. The contract for delivery in three months on the London Metal Exchange advanced as much as 2.4 percent to $14,190 a metric ton, the highest since Dec. 30, and traded at $13,960 at 9:58 a.m. in Shanghai. The metal jumped as much as 3.3 percent on Jan. 10, the most since Oct. 22, and is up 0.4 percent this year after slumping 19 percent in 2013.

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.

Copper for delivery in three months on the LME rose 0.5 percent to $7,340 a ton. The metal for delivery in March climbed 1.1 percent to 51,900 yuan ($8,584) a ton in Shanghai. The contract for delivery in March gained 0.3 percent to $3.353 a pound in New York.

The Indonesian Mineral Entrepreneurs Association said it plans to challenge the ban in the Supreme Court and Constitutional Court, the two highest courts in the country. A major economic impact could make the ban a hot political issue in this year’s legislative and presidential elections in the world’s fourth most populous country.

“We call on all mining workers to prepare to go on the streets and swarm the presidential palace if the government goes ahead with the implementation of the ban,” said Juan Forti Silalahi of the National Mine Workers Union in a statement on Saturday.

Police have been stationed at ports and around mines to secure those places in case of public disturbances, said national police spokesman, Boy Rafli Amar.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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