The opinions expressed here are those of the author, a columnist for Reuters.
Feb 3 (Reuters) – Indonesian minerals policy is rarely a straightforward affair and so it proved again in the run-up to the Jan. 12 ban on exports of unprocessed ores.
There was plenty of last-minute drama, particularly concerning the treatment of copper concentrates. These were first unexpectedly included in the ban and then granted an eleventh-hour presidential exemption, but with an equally unexpected caveat of rising export taxes.
And there will surely be more twists and turns in the story in the weeks and months ahead. Both of the major copper producers operating in the country, Freeport McMoRan and Newmont Mining, are challenging the government’s right to change existing contracts of work governing their operations at Grasberg and Batu Hijau respectively.
A local mining association, meanwhile, has wasted no time in filing a legal challenge to the ban. The really big surprise, though, is just how total the ban is. Right up until the Jan. 12 deadline the consensus view was that the Indonesian authorities would fudge the issue, most likely in the form of wide-ranging exemptions to companies that had displayed a minimum level of commitment to building processing plants.
Not so, however. Such exemptions may come with time but for now this ban bites as well as barks.
COLLAPSING OUTPUT
One of the expected restraints on Indonesian policy-makers was the likely flow-through impact from the ban on a local mining industry that is a major employer and a major revenue generator for the country.
There was no shortage of dire warnings about mass lay-offs and mine closures if the ban went ahead. Given the somewhat parlous state of the Indonesian economy, there was widespread scepticism that the government would really want to kill off large parts of its resources sector.
Yet not only did the authorities go ahead anyway, but it is becoming clear that they are fully prepared to countenance the short-term pain for the longer-term gain of forcing the mining sector down the value-added processing path.
The proof comes in the form of the mines ministry’s forecasts for minerals production this year.
Output of both bauxite and nickel ore, key export streams to processing industries in China, are expected to collapse.
Nickel ore output is seen slumping from 60 million tonnes in 2013 to just 3.5 million tonnes this year. Bauxite production is expected to contract even more dramatically from 56 million tonnes to just one million tonnes.
Copper production is expected to rise from 450,000 tonnes to 640,000 tonnes, although ironically it is the copper market that is experiencing the most immediate impact from the ban.
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