The Indonesian government recently stated that if all refining and processing facilities are completed and put into operation in 2022, almost all nickel ore can be processed domestically. The current production of nickel ore in Indonesia is about 60 million tons per year, and the country's smelters can absorb and process half of the ore. The Indonesian government's goal is to increase the domestic nickel ore processing capacity to 59 million tons or close to the national output in the next two years. In addition, Indonesia's domestic nickel ore processing technology will also be improved. The Indonesian government predicts that by 2022, there will be a balance between nickel ore output and smelting capacity.
If the Indonesian government’s plan is successfully implemented in 2022, it means that the nickel ore export ban will be effective and will gain momentum for continued implementation. Under this trend, will it become more and more difficult to buy mines from Indonesia?
Overview of Mineral Resources in Indonesia
Indonesia is the largest country in ASEAN, with a land area of 1,904,443 square kilometers and an ocean area of 3,166,163 square kilometers (excluding exclusive economic zones), and it is rich in mineral resources. Metallic minerals mainly include bauxite, nickel ore, iron ore, copper, tin, gold, silver, etc.; non-metallic minerals mainly include coal, limestone and granite. There are also certain reserves of zinc, mercury, manganese, lead, clay, andesite, quartz sand, feldspar, dolomite, kaolin, bentonite, zeolite, phosphate, and gypsum.
Ore export policy continues to tighten
Since 2009, Indonesia has implemented a series of policies, from encouraging investment by metal refining companies to completely banning the export of unprocessed ore. Indonesia has been committed to increasing mineral processing facilities to increase the country’s added value of minerals, thereby creating more employment opportunities. Increase export income and promote economic development. In addition, increasing the added value of minerals is conducive to reducing account deficits and reducing pressure on national currencies and bonds. Therefore, enhancing downstream processing capacity has always been the goal of Indonesia's mining sector and mineral export law.
In 2009, the Indonesian government promulgated the new "Minerals and Coal Law", stating that from January 12, 2014, the export of 65 kinds of raw ores without processing will be completely banned, and the raw ores must be smelted or refined locally before they can be exported. Among them, China's highly dependent bauxite and nickel ore are also among them.
On January 12, 2014, Indonesia's export ban on raw ore officially took effect, but it has been relaxed compared with the regulations issued in 2009. 66 mining companies are not affected by the ban and can continue to export concentrates until 2017. The export concentrates are copper, manganese, lead, zinc and iron, but all nickel and bauxite ore exports will be stopped. Enterprises must be smelted or refined locally before exporting.
In January 2017, the Indonesian government relaxed the relevant ban, allowing smelters to export surplus low-grade nickel ore with a nickel content of less than 1.7%, provided that the construction of the smelting project is completed within 5 years, and 30% of the nickel ore is used for domestic production. , The remaining low-grade ore can be exported. According to 2017 regulations, Indonesia plans to stop the export of unprocessed ore on January 12, 2022.
In September 2019, Indonesia decided to enforce all nickel ore export bans from January 1, 2020, two years earlier than originally planned, with the purpose of accelerating the construction of domestic smelters. At the end of October of the same year, Indonesia decided to immediately stop exporting nickel ore, and the ore originally planned to be exported would be transferred to domestic enterprises with smelters.
Attract investment to develop local industrial chain
At the end of 2019, the Indonesian government expressed its hope that low-cost renewable energy would attract billions of dollars in investment to build nickel, copper and aluminum smelters.
In May of this year, the Indonesian Parliament passed an amendment to the mining law. The purpose of this amendment to the mining law is to improve the mining investment environment, increase legal transparency, and attract investment in multiple commercial fields. The new mining law sets the initial application period for mining licenses to 30 years. If mining companies can build downstream smelters or coal gasification projects, they can also extend the life of the mine regularly. At the same time, mining companies are allowed to extend the license period and expand the mining area beyond the existing legal framework.
The Indonesian government predicts that by 2024, investment in nickel and related industries will reach 30 billion U.S. dollars, of which the investment in new nickel processing plants will reach 20 billion U.S. dollars. The projects come from Tsingshan Holding Group, Ningde Times, Vale Indonesia Branch, Sumitomo Metal Mining Company, etc. Companies such as Toyota, Tesla, Volkswagen and LG Chemical are also looking for opportunities.
The Indonesian government also requested the Indonesian branch of Freeport to build a copper smelter in Veda Bay (a new metal industrial park on the island of Hamahera). The Indonesian government’s goal is to build a comprehensive smelting center in Vedic Bay and hopes to add a copper processing facility in the nickel smelting center in North Maluku. At the same time, Freeport Indonesia is building a US$3 billion smelter in East Java. The construction of the smelter is part of the agreement between Freeport and the Indonesian government, which will maintain the mining rights of the Grasberg copper mine in Freeport until 2041.
Local industrial chain construction has achieved results
In 2019, mineral products accounted for 13.1% of Indonesia’s total merchandise exports, of which coal accounted for more than 90% of mineral exports. Analysts said that due to the reduction of domestic surplus and weakening of external demand, coal exports will weaken. Data from Fitch Solutions shows that coal-fired power projects account for more than 60% of the power projects under construction in Indonesia, and generate more than 21 GW of electricity. Vigorously developing coal power will consume more coal in Indonesia.
Fitch predicts that Indonesia's restrictions on the export of raw ore will become greater and stronger, and the export of raw ore will therefore stagnate, but the shipment of refined metals will grow strongly. The government's policy to encourage local processing has had a substantial impact. In the five years ending in 2019, Indonesia's refined metal exports have grown at an average annual rate of 9.2%, from US$9.3 billion to US$13.4 billion.
In 2019, Indonesia's steel exports increased more than five times, reaching 7.4 billion U.S. dollars, accounting for about 80% of all refined metal exports. Almost half of these steel products are shipped to China, and Fitch predicts that China will remain the main growth driver for Indonesia's processed metal exports.
From January to June this year, major Indonesian nickel miners produced 666,696 tons of ferronickel and 418,955 tons of nickel pig iron, an increase from 517,261 tons of ferronickel and 364,451 tons of nickel pig iron in the same period last year. In addition, Indonesia exported 517,077 tons of ferronickel and 136,192 tons of nickel pig iron in the first half of this year, and sold about 177,462 tons of nickel iron and 175,700 tons of nickel pig iron to domestic industries.
Buying mines from Indonesia will become more and more difficult
In addition to nickel mines, the Indonesian government is also considering an early ban on the export of minerals such as bauxite and copper concentrates, working hard to transform into a mineral processing country, and betting that Chinese companies will increase billions of dollars in investment in the construction of smelters and processing plants. . Indonesian President Joko Widodo said in January this year that the export of various raw materials such as bauxite, tin ore and coal may be stopped next year.
In April this year, the Indonesian Nickel Mining Companies Association proposed to allow the export of nickel ore to offset the decline in processed nickel exports caused by the new crown pneumonia epidemic, but the proposal was rejected by the Indonesian Ministry of Maritime Affairs and Investment.
The Ministry of Energy and Minerals of Indonesia has repeatedly emphasized that Indonesia will continue to maintain the export ban on nickel ore. Although Indonesia’s newly revised "Minerals Law" relaxes the export ban on some other minerals and allows miners who build smelters to export ores within the next three years, the government can set up separate regulations to prohibit the export of specific ores.
In addition, due to no progress in the development of smelters, the Ministry of Energy and Mineral Resources of Indonesia temporarily revoked the export licenses of five mining companies, which also confirmed the determination of the Indonesian government to develop domestic downstream industries. In July this year, the Indonesian government formed a task force responsible for monitoring nickel ore transactions.
There are indications that the goal of the Indonesian government is always to direct investment to high value-added downstream mining activities, rather than exporting raw ore. In the next few years, the policy focus of the Indonesian government will continue to be to promote the downstream development of the mining industry chain, and the leading position of the mining industry as the driving force of Indonesian mineral exports will be increasingly lost. With the increase of local refining capacity, it is expected that Indonesia's export restrictions on unprocessed mineral products will increase in the next few years, and the mining industry will gradually lose its dominant position in Indonesia's merchandise exports. Products such as steel and ferronickel will dominate export growth.
It is really getting harder and harder to buy mines from Indonesia!
