Hot topic - How serious are the consequences of Indonesia’s ban on the export of unrefined nickel and other ores?
Rhiannon Garth Jones talks to experts about the future of the nickel market.
Alastair Lang, Global Business Relationship Manager, Doncaster Analytical Services, UK
Whether the ban on the export of nickel ore had been fully implemented or not, it would still have impacted the price of nickel, because of the unsettling effect the proposal had on the market. It will take time for companies to develop the infrastructure for the processing of nickel ore in a similar way to how companies had to develop manufacturing processes for timber. Whether the Indonesian Government allows some concessions for producers to enable them to make the investments remains to be seen, but what is certain is that the stakes are high and companies are unlikely to walk away.
In the late 1970s, Indonesia activated a ban on timber exports, and when it was brought into force many companies were no longer able to operate. One result was the growth in illegal exports that has continued ever since. However, on a positive note, many companies have established downstream manufacturing activities providing employment and there are numerous examples of sustainable forest management.
I am not suggesting that there are direct comparisons between the logging industry in the 1970s and the mining industry in 2014, but from my years living in Indonesia, I know that nothing is straightforward or as it seems on the surface. In the meantime, restrictions on the export of nickel ore will certainly impact the price of nickel.
Thomas Höhne-Sparborth, Senior Economic Analyst, Roskill Information Services Ltd, UK
It is hoped that the ban will eventually boost Indonesia’s profits from its mineral wealth by forcing miners to process their ores before exporting. Bauxite, nickel, tin, chromium, gold and silver will be affected, but nickel is most important because relatively little (only around 22%) is processed domestically. More than 90% of Indonesia’s nickel ore shipments are destined for China for conversion to nickel pig iron, and stockpiling of nickel ore in China in advance of the ban’s implementation means a large spike is unlikely. However, if refined nickel stocks start to fall significantly then prices may rally.
The Government might still grant concessions to nickel consumers who show firm plans to develop intermediate processing domestically, or argue that to do so is uneconomic, which could improve the situation. It is certainly possible for nickel smelting to be established in Indonesia, but projects to do so will require strong financial backing and access to established technologies. However, Indonesia faces some infrastructural challenges, particularly regarding access to electricity. Rotary kiln electric furnace projects may be particularly delayed.
In addition, it is likely that officials in the Philippines will be carefully monitoring Indonesia’s experiment. The Philippines is likely to reap some of the benefits of increased demand for its nickel ore, as a result of reduced availability of Indonesian ore, and the export tax on nickel ore could be raised from 2% to 7% later in 2014, although they might also re-introduce similar legislation themselves.
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Need to know
- Exports allowed – copper, iron ore, lead and zinc, although taxes on these will rise from 20% to 60% by 2016, depending on quality
- Exports banned – bauxite, nickel, tin, chromium, gold and silver
- Indonesia produces 18–20% of the world’s nickel
- Grasberg, in Indonesia, is the largest gold and third largest copper mine in the world
- Ore exports from Indonesia account for 60% of China’s ore imports, according to consultants Wood Mackenzie, UK