JAKARTA/SYDNEY – Jan 27 (Reuters) – Indonesia’s ban on exports of key mineral ores – unless they are processed in the country – risks backfiring as weaker commodity prices mean it is not cost-effective to invest in expensive smelters and refineries.
The ban, which came into effect on Jan. 12, was unveiled in 2009 as a commodities boom began to froth and Jakarta sought to extract more value from its mineral resources. But metals prices and margins have since fallen, leading to oversupply and less need for building more processing capacity.
Worried about the impact on its current account deficit and a sagging rupiah currency, Jakarta tried to ease the ban last month only to be blocked by parliament. This month, it issued exemptions to allow shipments of copper, zinc, lead, manganese and iron ore concentrate, leaving nickel and bauxite – key ingredients in making steel and aluminium – the main targets.
Companies considering building alumina refineries are moving slowly as they weigh the big investments required amid caution over Indonesia’s policy flip-flops.
A 1 million-tonnes-a-year alumina refinery in Indonesia would cost around $1.5 billion to build. To recover that investment, even without making a profit, the price of alumina – made from bauxite ore – needs to be “well over” $400 a tonne, said Michael Komesaroff, principal consultant at Urandaline Investments, noting alumina trades now at $325-$350 a tonne.
“It’s not economic to construct an (alumina) refinery in Indonesia. The costs are too high, the bauxite deposits are too scattered to supply an in-situ refinery and the sovereign risk in Indonesia for such a capital intensive asset would be too high,” he said.
Indonesia is the world’s biggest exporter of nickel ore, refined tin and thermal coal, and is home to the fifth-largest copper mine and top gold mine. Indonesian bauxite exports make up around 12 percent of global aluminium output.
Indonesia’s trade ministry said on Friday that no miners or companies had requested approval for concentrate or ore exports since Jan. 12 and no concentrate shipments have taken place since then.
SOME WILL, SOME WON’T
The ban will depress local prices, potentially damaging the domestic industry it was designed to help, and have a knock-on effect on reducing Indonesia’s foreign exchange earnings. In terms of jobs, smelters are not big employers, and offer only a small return on high investment.
The export ban could cut government revenue by as much as $820 million this year, Indonesia’s finance minister has said.
While Indonesia’s bauxite industry could be crushed, some nickel miners, starved of sales revenue as ore piles up and can not be shipped, are speeding up plans to build smelters.
But here, too, the cost calculations don’t look promising.
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