Indonesian nickel ore sales seen surging if country eases ban

[JAKARTA] Indonesia's nickel ore shipments are set to surge should the government allow exports of low-grade material in a potential move that has spurred opposition from an industry group and the country's biggest producer.

The nation could ship as much as 15 million metric tons a year and the same amount of bauxite, according to Teguh Pamudji, secretary general at the Energy & Mineral Resources Ministry. That compares with virtually nothing now and is almost half the 32.3 million tons exported by the Philippines last year. Related ministries will start meeting next week to assess changes to the sales moratorium imposed in 2014, Mr Pamudji said by phone in Jakarta on Friday.

The surprise announcement this week that Indonesia was considering easing the prohibition met resistance from PT Vale Indonesia, a unit of Brazil's Vale SA, and the Indonesian Processing & Refining Industry Association, made up of 20 producers. Vale said the move risks flooding the market and undermining prices, while the group expressed fears the proposal would deter foreign investors who've spent billions of dollars in the country to build smelters.

"By allowing exports of ore the companies will get revenue to accelerate construction of smelters and the state will get income from export taxes," Mr Pamudji said. "We'll set a limit on the volume of shipments, may be in the form of a quota. We need a balance between domestic needs and exports, to avoid flooding the market so we can manage prices."

The plan has angered some Chinese investors who have spent billions of dollars to build smelters in Indonesia, according to Jonatan Handojo, vice chairman of the Indonesian Processing & Refining Industry Association. The group is against the idea as ore with 1.8 per cent or less metal content can be processed locally, he said on Thursday. State-owned PT Aneka Tambang, known as Antam, supports the relaxation because the sales would help finance local smelters, according to Corporate Secretary Trenggono Sutioso.

"This will bring shame to the government because the world will see that in this country law and regulations can be easily changed," Mr Handojo said. "The government asked investors, the Chinese to come and invest, and now they're saying they want to allow ore exports. It's like they're playing with us."

Indonesia banned shipments of raw ores including nickel and bauxite in 2014 to encourage development of domestic processing and to stop mineral wealth disappearing overseas. The country is weighing whether to allow sales of ore containing 1.8 per cent nickel or less because it's hard to process locally, Luhut Panjaitan, acting energy and mineral resources minister, said Tuesday.

Ore with that content is a very good grade, and technically can be processed easily in domestic smelters, according to Vale Indonesia President Director Nico Kanter in an e-mailed response to Bloomberg questions Wednesday.

"Allowing any exports of nickel ore, especially ore of such high grade, needs to be carefully considered, especially given the significant ongoing investment in Indonesian smelters," he said.

The country was the world's biggest supplier of nickel ore used in stainless steel before the ban, shipping 64.8 million tons in 2013, according to the World Bureau of Metal Statistics. Most of that went to feed the industry in China. While the Philippines ramped up output to fill the gap, rapid mine development in the past two years triggered an environmental audit from President Rodrigo Duterte and the industry now faces a raft of closures.

Mr Antam said processing low-grade material is not economically viable for local producers.

"If we can manage the sale of low-grade ore well, it can support the downstream program, help companies to accelerate smelter construction and increase state revenue," Mr Sutioso said in a text message on Wednesday. The government can control exports to avoid an oversupply, he said.

Nickel on the London Metal Exchange slumped to US$7,550 a metric ton in February this year, the cheapest in more than a decade, after reaching US$21,625 four months after the Indonesian ban in 2014. The metal traded at US$10,270 on Friday. Vale Indonesia shares have lost 9.5 per cent this week in Jakarta, while Antam stock has dropped 2.4 per cent.

In a scenario where Indonesia allows some low grade ore exports in combination with a "tough but fair" closure program in the Philippines, inventory levels will probably remain high, representing a downside risk for the market, with prices potentially falling below US$10,000, Deutsche Bank AG said in a report dated Oct 6.

BLOOMBERG