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Indonesia Seen Avoiding Complete Ore Export Ban to Save Jobs

Sept. 25 (Bloomberg) -- Indonesia will probably refrain from completely banning mineral ore exports in 2014 as the move would spur unemployment before elections, said Jim Lennon, commodities consultant to Macquarie Group Ltd.

“I don’t expect Indonesia will fully ban ore exports next year,” he told the Metal Bulletin Asian Nickel Conference in Jakarta. “They will have to work out a political compromise.”

China, the biggest user of industrial metals, sourced 58 percent of its nickel ore imports and 66 percent of bauxite needs from Indonesia in the first eight months, customs data compiled by Bloomberg show. The proposed ban is part of Indonesia’s efforts to increase the value of commodity exports and strengthen control over supply. The probability of a total ban is “very low” because of the potential permanent loss of market share and drop in tax revenues, said Deutsche Bank AG.

“Ahead of elections in April 2014, it’s hard to imagine the government creating mass unemployment in Sulawesi and Kalimantan,” said Lennon today, who has followed nickel for more than three decades. He was referring to the country’s top producing regions for nickel ore and bauxite.

President Susilo Bambang Yudhoyono, who can’t run for a third term, will hand over power after presidential elections in July. Election rules require a party or a coalition to hold at least 20 percent of parliament seats or win 25 percent of the votes in the legislative election -- due in April -- to nominate a presidential candidate.

Ban Exemptions

While the country plans to halt export of ores, including nickel and bauxite, the government is studying some exemptions for mining companies that already have smelters or are planning to build them. The chances that Indonesia will ban ore sales are 50-50, according to Glencore Xstrata Plc.

The government may opt for “a selective ban on those operators that have not demonstrated sufficient progress in their plans to build smelting capacity,” Deutsche Bank analysts including Michael Lewis wrote in a report today. Another option is “the imposition of onerous export duties to incentivize all parties to speed up their smelter plans,” the bank said.

Comments from government officials suggest that they’re trying to work out a solution, said Lennon, who believes that China has built “huge” stockpiles of ore in preparation for any disruption of supplies.

“When we made the Mining Law in 2009, we expected that smelters would be built within five years, but they’re not, so we have to be realistic about this,” Energy and Mineral Resources Minister Jero Wacik said Sept. 10. The government will discuss the issue in parliament to seek a solution as only 12 companies submitted plans to build smelters, he said.

Nickel, used in stainless steel, has slumped 19 percent this year as stockpiles soared to an all-time high because of increasing production and weak demand. Inventories in warehouses monitored by the London Metal Exchange have more than doubled to 225,426 tons since the start of 2012, bourse data compiled by Bloomberg shows.

Nickel for delivery in three months rose 0.7 percent to $13,850 a ton on the LME by 4:28 p.m. local time.

To contact the reporters on this story: Yoga Rusmana in Jakarta at yrusmana@bloomberg.net; Eko Listiyorini in Jakarta at elistiyorini@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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