Seeking greater long-term returns from its vast mineral resources, Indonesia opted for some short-term pain. It banned the export of mineral ores in 2014 and encouraged mining companies to build smelters. The aim: to transform from a shipper of low-grade raw materials to a manufacturer of high-grade products such as aluminium and copper cathode. The landmark export policy, announced in 2009, gave resource companies five years to hatch smelter projects that together will cost about $20 billion. Then last month, Indonesia delivered a surprise: It scaled back the export ban, sending ripples through the world’s metals markets.
Most mining companies missed the government’s deadline to build smelters, leading to a pile-up of lower-grade nickel ores (used in stainless steel) and bauxite (the principal ore of aluminum). That hit the government coffers and cooled economic growth.