[MELBOURNE] Malaysia is emerging as an unexpected beneficiary of Indonesia's ban on ore exports as mining companies from its larger Southeast Asian neighbour pump cash into local bauxite deposits to meet demand from China.
At least five Indonesian miners invested in Malaysia by the end of last year, teaming up with partners to extract the ore and ship it to China, according to Erry Sofyan, chairman of the Association of Indonesia Bauxite and Iron Ore Producers. More companies may follow, Mr Sofyan said in an interview in Jakarta.
The investments highlight the challenge Indonesia faces in trying to boost its metal-processing industry. The policy, which also covered nickel, aimed to compel investments in higher-value facilities and shipments to address concern the country was selling off resources on the cheap. While some smelters are being built in Indonesia, the curb boosted prospects for rival suppliers, including the Philippines, Malaysia and Australia.
"Malaysia is the winner from the Indonesian export ban," Mr Sofyan said on Thursday. "It's like a wakeup call for them. They finally realize that they have bauxite and that the metal has a good economical value. They see the opportunity and their exports are surging," he said.
Indonesia was the top bauxite supplier to China before the ban was introduced in January 2014. The five companies mine in Kuantan, in Pahang state, and Kelantan in Malaysia, according to Sofyan, who declined to identify them. Permits are easier to get in Malaysia, said Mr Sofyan, who's also a director at Harita Group.
Bambang Gatot Ariyono, director general of minerals and coal at Indonesia's Energy and Mineral Resources Ministry, told reporters on Friday that investments in Malaysia by Indonesian mining companies weren't a problem. Indonesia's goal is not in exporting ore, but in the added value from processing, he said.
Production in Malaysia more than quadrupled to 962,799 metric tons in 2014 from 208,770 tons the year before, data from the Minerals and Geoscience Department in Kuala Lumpur show. Shipments from the country to China surged to 6.14 million tons in January to May compared with 126,830 tons in the same period of last year, according to China's custom data.
"It is a threat to what the Indonesian government is trying to do," Daniel Morgan, a Sydney-based analyst at UBS Group AG, said by phone. "Malaysia has come from nowhere on the export-trade map, to being a pretty big exporter."
Australia has also benefited from Indonesia's curb. China's imports of bauxite from Australia surged 53 per cent in the first five months of 2015, the customs data showed. China is looking for new sources of supply, Australia's Department of Industry and Science said in March, noting that toward the end of 2014 there was a substantial pickup in Malaysian shipments.
Indonesia may produce 6 million to 8 million tons of alumina by 2021, said Mr Sofyan, referring to the semi-processed material that's made from bauxite and is used to produce aluminum. PT Well Harvest Winning Alumina Refinery, a venture between Harita, China Hongqiao Group and other partners, is building a plant in Indonesia's West Kalimantan to produce 4 million tons of alumina by 2021, he said.
The association wants the government to allow members to export bauxite under a quota to help finance construction of alumina projects, according to Mr Sofyan, who said some projects had been halted as companies didn't have enough cash flow. The government is looking for a solution, Mr Ariyono said.
It's a logistical advantage for Chinese buyers to get supplies from Malaysia, said Muhamad Nor Muhamad, executive director of the Malaysian Chamber of Mines, adding that he hadn't heard of the Indonesian investments. Malaysia's reserves are limited and may be depleted in three to four years, he said.