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PrintIndonesia rocked the mining world on Sunday putting into effect an outright ban on nickel, bauxite and tin ore exports.
The Asian nation is the world’s premier thermal coal and tin exporter and is also a gold and copper powerhouse, but the ban on nickel and bauxite ore would have the most dramatic effect on markets.
Last week Indonesian energy and resource ministry official scrambled to ease provisions of the raw mineral export prohibition that President Susilo Bambang Yudhoyono signed into law on Saturday, which is the most controversial decision of his 10-year presidency.
Indonesia dominates the nickel export business, accounting for over a fifth of global supply at an estimated 400,000 tonnes of contained metal. Chinese nickel pig iron producers imported more than 30 million tonnes of nickel ore from Indonesia last year and China's aluminium smelters rely on Indonesia for 20% of their feedstock.
According to the latest rules under the ban, base metals including copper, manganese, lead, zinc and tin will be allowed to be exported in concentrate until 2017.
This benefits producers like Freeport-McMoRan Copper & Gold (NYSE:FCX) who operates the world’s third largest copper mine at Grasberg in the West Papua province and which warned about a 60% drop in output should copper form part of the ban. Phoenix-based Freeport and Newmont Mining Corp. (NYSE:NEM) together account for 97% of Indonesia's copper exports.
However against expectations of a last minute climbdown by authorities, the nickel and bauxite ore ban as well as the prohibition of unprocessed exports of tin, chromium, gold and silver went into effect Sunday.
The ban "is the biggest supply risk facing base metals in a long time. The market has been very complacent, thinking the Indonesians would backtrack."
FT.com quoted Gayle Berry, base metals analyst at UK bank Barclays earlier this week as saying the ban "is the biggest supply risk facing base metals in a long time. The market has been very complacent, thinking the Indonesians would backtrack."
Privately owned Ibris Nickel last week announced it will cease operations in Indonesia laying off 1,400 workers at its 2 million tonne per year mine. The nickel industry employs some 200,000 Indonesians across hundreds of small scale operations.
The South China Morning Post reports the Indonesian Mineral Entrepreneurs Association said it planned to challenge the ban in the Supreme Court and Constitutional Court while Reuters reports almost 30,000 mine workers have been laid off, sparking protest in the capital Jakarta:
"We call on all mining workers to prepare to go on the streets and swarm the presidential palace if the government goes ahead with the implementation of the ban," said Juan Forti Silalahi of the National Mine Workers Union in a statement earlier on Saturday.
So far the price of nickel has not reacted in a big way to the looming ban, but now all bets are off.
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