Indonesia’s Ban on Raw Mineral Exports Takes Effect
On Sunday, January 12th, Indonesia’s controversial ban on raw mineral ore exports took effect an hour after President Susilo Bambang Yudhoyono signed off on some eleventh hour exemptions. The rationale behind the ban is to encourage the domestic processing of raw mineral ore into higher value metal products. The hope is that a greater share of mining profits will remain in Indonesia.
Critics of the ban claim that it will result in mass lay-offs. The Indonesian Mineral Entrepreneurs Association claims that 30,000 mine workers have already been laid off, as mining companies scale back their operations. The Indonesia Chamber of Commerce estimates that as many as 800,000 jobs could be at risk. The lay-offs have sparked protests in Jakarta.
Concerns that the ban would greatly reduce Indonesia’s export revenues and worsen the country’s trade deficit are also in play since raw minerals comprise a significant part of Indonesia’s exports.
In response to these objections, the government asserts that the ban will be to Indonesia’s long-term advantage, as it will spur mining companies to build smelters and refineries, which will in turn boost the value of exports.
To further allay concerns, Finance Minister Chatib Basri announced on Monday, the day after the ban came into effect, that a three-year temporary exemption will be applied This will allow miners to continue to export partially processed metal “concentrates” which meet minimum purity levels:
- Copper – 15 percent
- Iron ore – 62 percent
- Manganese – 49 percent
- Lead – 57 percent
- Zinc – 52 percent
- Ilmenite – 56 percent
Initially, these exports will be subject to a 20 percent export tax, rising to 60 percent by the second half of 2016. The full ban takes effect in 2017. Under this exemption, the two largest copper miners in Indonesia – US companies Freeport-McMoRan Copper & Gold Inc. and Newmont Mining Corp – which account for 97 percent of Indonesia’s copper exports, can continue to export copper, though the tax evidently brings into question whether it will still be profitable for them to continue doing so.
Not covered by the temporary exemption are nickel and bauxite exports. Indonesia is a major exporter of nickel, supplying about 15 to 20 percent of global demand. The country is a major supplier of both nickel and bauxite to China, which uses up almost half the global consumption of nickel to manufacture stainless steel and uses bauxite in the production of aluminium. For the time being, China has guarded against the expected ban by stockpiling nickel and bauxite reserves to last half a year or longer. When those reserves run out, it will have to look elsewhere and Australia, the largest producer of bauxite in the world, could well benefit. Shares in Australia’s nickel mining companies responded positively to the news. However, Australia’s bauxite industry showed little reaction to the news on Monday.
As the export ban had been expected for some time, the last-minute decision to soften it by providing exemptions resulted in the rupiah hitting a one-month high (up as much as 1.1 percent), and Indonesia’s Jakarta Composite index hitting a two-month high (up 3.2 percent). This controversial law could see some more changes if it gets picked up as a political issue, as the 2014 legislative and presidential elections, in April and July respectively, approach.
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