(PRWEB) March 06, 2014
Indonesia, the world's largest exporter of raw minerals, has recently put into place one of the most far reaching policies enacted under the current government. In a controversial new policy which came into effect January 12th of this year Indonesia placed a ban on the export of non processed minerals. The intention of this was to encourage the state-owned domestic manufacturing industry. Historically, manufacturing in Indonesia has seen increasing competition from emerging economies like Vietnam alongside manufacturing giants such as China, Japan and South Korea.
The legislation has some exceptions due to the delicate nature of some of Indonesia's exports and domestic processing being poorly equipped to handle the large volumes required. These changes include the copper, iron ore, lead and zinc industries. It has been widely speculated that two American companies controlling 97% of the Indonesian copper mining industry have secured the exemption of copper by pressuring the Indonesian government. The main minerals that have been affected by the ban are nickel ore and bauxite.
Indonesia's parliamentary chairman for the committee for mining affairs, SutanBhatoegana, has defended the ban describing it as a short term barrier to promote long term benefits. The profits from exporting high value manufactured minerals would help improve the country's fiscal position. Additionally, the industrial stimulation of a processing industry is expected to create jobs.
A month later, the effects of implementing the ban on mineral exports have been less than positive. The new controversial legislation has resulted in a rise in the price of nickel ore. This makes domestic processing facilities less profitable to run. The London commodities exchange (LME) has recently rated prices as high as 14, 775 dollars (US) a tonne for nickel. This is a 7% increase from the 13,800 dollars (US) a tonne in December 2013.
Mr. Vaman Kumar, Director at IRIV, who has been researching on the subject believes that commodity price for nickel ore must drop or the price for the processed metal rise in order to support the sustained costs of a domestic processing facility. Until it does, the Indonesian domestic market simply cannot afford the start up costs of a refinery. Neither will the foreign investors take the financially risky step of investing in Indonesia while the possible revenues from such a venture remain minuscule in comparison to elsewhere.
Presently the price of nickel has stabilised at around 14, 225 dollar (US) per tonne on the LME. It is still not competitive enough to justify a domestic processing facility. Furthermore, the price is showing no signs of amending itself as demand for raw minerals rises to fuel Chinese, Japanese and South Korean manufacturing.
The knock on effects for other industries dependent on the nickel exports of Indonesia have lead Japan to attempt to overturn the ban using the World Trade Organisation. The Japanese Economy, Trade and Industry Minister has described the Indonesian ban as being in clear violation of WTO legislation and intends to attempt to have it overturned by international pressure. Indonesia has so far failed to amend the legislation, with a move to end the ban blocked by parliament.
In the long term Asian manufacturing giants may look elsewhere for their supplies. The ban may have cut Indonesia's throat as other markets sit poised to take up the slack. Other minerals are already available from nearby Australia. The ban in Indonesia may actually give a shot in the arm to the Australian mining sectors. This will allow the export of minerals to be expanded greatly and giving knock on effects in Australian shipping and mining support industries. Australian Nickel ore is more expensive but a more nickel rich ore giving better quality products.
Investment in Indonesia is dangerous and risky in the current climate. With this being the case it is best to avoid commodities here for the time being, especially nickel ore. Alternative markets in the region are sure to have a sudden boom in orders as prior to this Indonesia had ninety percent of the Chinese import trade sewn up.
About Vaman Kumar
Vaman Kumar, Director at IRIV researches on subjects of interest especially in the field of coal trade. He has profound knowledge of fields like Metals, Minerals and Energy in Commodity Trading, International trade, Banking, Finance and Credit and Risk Management. His research and studies are of help to various industries.
Source of information:
Indonesian mineral export ban may hurt miners
Author: Thomas Latschan Edited by: Sarah Berning
Published: online for DW trade news, 15th January 2014
Accessed: 26th February, 2014 at 1115 hrs UTC
RI prepared to face Japan at WTO over mineral ore export ban
Author: Linda Yulisman
Published: The Jakarta Post, Jakarta. Tue, February 25 2014, 12:10 PM
Accessed: 26th February, 2014 at 1126 hrs UTC
As smelters weigh cost, Indonesia's ore export ban may backfire
Author: By Fergus Jensen (Jakarta) and Melanie Burton (Sydney)
Published: Reuters online, Sun Jan 26, 2014 11:05pm EST
Accessed: 26th February, 2014 at 1136 hrs UTC
London Metal exchange- Nickel price data
Accessed: 26th Feburary, 2014 at 1146 hrs UTC
Site URL: http://www.lme.com/