Indonesia Confounds Mining Industry With Export Policy Curveball

  • Commodity producer revises export rules in major policy shift
  • Revision is bearish for nickel; state producer Antam benefits

Indonesia’s unexpected mining policy shift is reverberating around the world. As the dust settles, here are four charts showing possible consequences of what Macquarie Group Ltd. called a “very strange move.”

Southeast Asia’s biggest economy on Thursday said it will allow exports of excess nickel ore and bauxite by miners that are building processing plants in the country, easing a ban on unprocessed ore shipments that’s been in place since 2014. While it’s not a complete reversal of the ban, the potential for greater ore exports is bearish for global nickel prices, according to Citigroup Inc. Futures tumbled more than 5 percent in London after the changes were announced, before reversing losses. The bank thinks they could drop as low as $9,500 a metric ton from $10,205 as of 5:46 p.m. in Singapore on Friday.

The new rules may benefit state-owned nickel miner PT Aneka Tambang, which had been lobbying for a reversal of the ban. The company is sitting on ore stockpiles of 20 million tons, equivalent to about 235,000 tons of nickel, Macquarie estimates. The president director of the company known as Antam welcomed the changes, saying they would help improve cash flow and raise financing for smelter projects. The company’s shares jumped.

The new rules mean Antam could potentially ship as much as about 70,000 tons a year of nickel contained in ore over coming years from stockpiles and mine restarts, according to Macquarie, which doesn’t expect exports from anyone else. This is likely to end up in the hands of Chinese nickel pig iron producers and compete with shipments from the Philippines that had replaced Indonesian exports since the ban was imposed. The additional supply could lower costs for NPI producers, a key determinant of LME nickel prices, the bank said. While global balances won’t change much, prices may fall to $9,000 to $10,000 a ton.

Indonesia’s ban was a boon to rival producers as their output filled the hole. The Philippines became the world’s biggest supplier of mined nickel and the largest shipper to China. Now, their shares are tumbling. Nickel Asia Corp., the country’s top producer, fell 14 percent on Friday along with Japan’s Sumitomo Metal Mining Co. and GMK Norilsk Nickel PJSC. The change in regulations may also upset Chinese investors that pumped money into developing Indonesia’s domestic processing industry. Citigroup had forecast a 180 percent increase in capacity by 2020, to about 400,000 tons.

The government also changed rules on exports of semi-processed metals such as copper concentrate. Companies including Freeport-McMoRan Inc. and PT Amman Mineral Internasional, which last year bought the Indonesian copper and gold assets of Newmont Mining Corp., stopped shipments earlier in the week after regulations allowing exports lapsed Jan. 11. They must now comply with a range of rules before concentrate exports can resume, including converting their contract of work into a special mining business license and committing to build smelters. Freeport shares slumped in New York Thursday.

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