Indonesia¡¯s raw materials export ban likely to be relaxed

In a move aimed at stimulating debate within the county, strong signals have emerged from the Indonesian government that a relaxation of its raw materials export ban will occur and that bauxite and nickel (laterite) will be added to the list of allowed mining exports. 

On Wednesday 5th October, Acting Minister of Energy and Mineral Resources Luhut Binsar Pandjaitan, and on Friday 7th October the Secretary General at the Energy and Mineral Resources Ministry, both commented that the ban could be relaxed to allow miners with smelter (& refinery) projects to export for up to five years (until 2022), whilst their projects were under construction.

In a repeat of sentiment and regulations being progressed within the Indonesian government immediately prior to the Jan 2014 ban, the proposed resumption of exports will not be a return to unregulated and uncontrolled mining, rather an industry regulated by quotas set by the Energy Ministry and based on the reported progress of each project. Extra taxes were also flagged.

In a sign the debate has a way to run, the proposed changes have reportedly been rejected by the Indonesian Manufacturing and Refining Companies' Association, representing 21 smelter projects, with its chairman Prihadi Santoso claiming the rule changes would jeopardise existing projects worth US$12 billion, especially those projects without mines.

Since 2014 when the second Indonesian Raw Materials Export ban was introduced, some heat has come out of market for Indonesia’s once hot commodity exports. In the immediate term the emergence of Malaysia and now Guinea have negated China’s dependence on Indonesian bauxite and additional future supplies from projects such as Amrun are in the pipeline. Against this backdrop, only one of the nine Indonesian Alumina refinery projects flagged by CM at the end of 2013 has been built (the 1 MTPY P.T. Well Harvest Winning project in Kendawangan). Nickel has seen Indonesia fare better, with a significant number of nickel pig iron facilities constructed or under construction.

Bauxite Index views that moderate exports, such as those discussed immediately prior to the Jan 2014 ban and re-invigorated last week by comments from the Energy and Mineral Resources Ministry, were likely and are factored into forward estimates and forecasts. Amid ongoing debate, changes are not likely to be seen as quickly as the Acting Minister Luhut flagged (within two weeks), however a resumption of exports by end 2016 or early 2017 seems highly likely. While a relaxation of the ban will offer incentives for miners and smelter/refinery proponents, for reasons already outlined, it is unlikely to stimulate Indonesia’s mining industry to the dizzy heights of the past.

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