With just months to go for general elections, Indonesia’s outgoing President Susilo Bambang Yudhoyono has taken one of his tenure’s most significant economic policy decisions, by banning exports of unprocessed mineral ore. The impact of this decision will roil global industries from aluminium to steel manufacturing.
Indonesia is the world’s largest exporter of nickel ore, refined tin and thermal coal, and home to the fifth-largest copper mine and the top gold mine. Mineral shipments totalled $10.4 billion in 2012 according to the World Bank. Not all minerals will be equally affected by the ban however, and certain, primarily American, mining corporations, have been granted exemptions as well.
The reasoning behind the ban lies in an attempt to boost the domestic processing industries, by mandating that ores are processed locally before being exported. Despite having seen an average of 6 percent growth in recent years, Indonesia’s remains a largely commodities-driven economy and policy-makers are keen to try and kick start more high-value added, local manufacturing.
However, the move has been opposed by both domestic and foreign miners resulting in lay-offs and strikes in the mining sector. Officials are also worried that a short-term cut in foreign revenue could widen the current account deficit, which could further put pressure on the already battered, rupiah, the country’s currency.
Companies that build local smelters and process the ore domestically will still be allowed to export their products. However, the hundreds of small domestic miners that cannot afford to build a smelter, which can cost hundreds of millions of dollars, will be adversely impacted.
New regulationPresident Yudhoyono has now signed a regulation that waters down the export ban somewhat, largely to accommodate the demands of American mining giant Freeport.
Freeport, which holds a 73 percent market share in Indonesia’s copper production, warned last month that unless the ban was revised, it would reduce output at one of its mines by 60 percent and also be forced to lay off half of its 15,000 Indonesian employees.
Under the regulation, Freeport and Newmont Mining, would still be allowed to export copper, manganese, lead, zinc and iron ore concentrate until 2017, by when they must build smelters to process the ore locally. But nickel ore and bauxite exports worth more than $2 billion annually will be banned.
Good news for IndiaCoal and tin shipments will not be affected. This is good news for India, since Indonesia supplied 75 percent of Indian imports of thermal coal in 2013.
Worst hit by the ban will probably be China. China imports close to a quarter of its bauxite – a raw ingredient for the production of aluminium — from Indonesia, and may force China to curtail some of its refining and smelting capacity. Again, halting exports of nickel ore would hurt the Chinese stainless steel industry, which accounts for almost 50% of the global output.
