Indonesia's 2014 Mineral Export Ban: What Happened to Bauxite, Copper and Nickel

By Graham W. Lederer, USGS National Minerals Information Center. USGS Fact Sheet 2016–3072, September 2016.

Resource nationalism covers the ways governments control the extraction of their natural resources — from higher tariffs to export bans — with effects that ripple through world trade. As other developing countries weigh such policies, Indonesia's 2014 ban on exporting unprocessed minerals is an instructive case. The USGS tracked how aluminum, copper and nickel — as ores and concentrates and as refined metal — were produced and traded before and after.

The law

• 2009: Indonesia's Mining Law (Law No. 4), to take full effect in 2014, banned exports of unprocessed ores, required domestic processing and refining, raised some export tariffs, and required foreign shareholders to sell up to 51 percent to Indonesian entities within 10 years of starting commercial production. The aim: more high-value products and more government revenue.
• 2014: amendments allowed temporary exports of partly processed minerals for 3 years, with duties rising from 20 percent in 2014 to 60 percent by 2017. Copper's purity requirement fell from 99 to 15 percent, with a 25 percent duty on concentrate.

Production before and after

Indonesia's annual mine production, with its share of world output. Chart: USGS.

Tin, of which Indonesia was the leading refined-metal exporter in 2013, was unaffected: tin-ore exports had been banned since 2002.

How aluminum, copper and nickel moved through Indonesia's economy in 2013 and 2014. Diagram: USGS.

Bauxite and aluminum

• Collapse: from a record 55.7 million metric tons in 2013 — second only to Australia — bauxite production fell by more than 95 percent to 2.6 Mt in 2014, and an estimated 1 Mt in 2015. Export revenue fell from $1.3 billion to $46 million.
• Why: there were no alumina refineries and just one aluminum smelter (PT Inalum, at Kuala Tanjung, using imported alumina, output steady at 250,000 t), so all bauxite had been exported. China took 97 percent of it (2005–2014), stockpiled ahead of the ban, then drew down stocks and turned to Malaysia and Australia.
• New capacity: PT Antam's chemical-grade alumina refinery at Tayan (with Japan's Showa Denko) started in 2015; smelter-grade refineries at Mempawah (2 Mt/yr), by PT Well Harvest Winning (4 Mt/yr by 2021) and on Bintan Island (Shandong Nanshan, a $2 billion complex) are coming. Indonesia's industry may consume 15 to 20 Mt/yr of bauxite by 2020.

Copper

• Output: down from 504,000 t of copper in concentrate (2013) to 374,000 t (2014), from mines at Batu Hijau (Sumbawa, PT Newmont) and Grasberg (Papua, PT Freeport).
• Why less: temporary shutdowns and legal disputes with the foreign-owned miners; no concentrate was exported from February to July 2014.
• Still dominant: copper concentrate was 93 percent of unprocessed mineral export value in 2014. About half of concentrate is processed at home, at the Gresik smelter (PT Smelting, 300,000 t/yr). Japan bought 35 percent of exports (2005–2014); China's share rose from 4 to 23 percent.
• Ownership: Newmont and Sumitomo agreed on June 30, 2016, to sell their Batu Hijau interest to PT Amman Mineral Internasional; Freeport-McMoRan agreed to divest a further 20.64 percent of PT Freeport.

Nickel

• Collapse: from a record 834,200 t of contained nickel (2013) to 177,000 t (2014). Ore exports fell from 64.8 Mt to 4.2 Mt, shipped before the ban took effect.
• China's appetite: driven by nickel pig iron (NPI) for stainless steel, China took 96 percent of ore exports in 2014. After the ban it drew on stockpiles and lower-grade ore from the Philippines.
• Value in processing: under 15 percent of 2013's nickel was processed at home (as ferronickel and nickel matte), yet it earned 41 percent of nickel export value.
• New smelters: expansions by PT Vale (Sorowako to 120,000 t/yr) and PT Antam, and new NPI plants such as PT Sulawesi Mining Investment's at Morowali, could bring processed output to about 400,000 t/yr — less than half the 2013 mine peak. They are a subset of nearly 40 smelters proposed.

Monthly exports of unprocessed ores and processed metals, December 2012–December 2014. Chart: USGS.

Impact and outlook

• The economy: GDP contracted by 2.4 percent from 2013 to 2014, partly because of the ban.
• Export value: aluminum, copper and nickel exports fell from $8 billion (nearly 1 percent of GDP) to $4.1 billion. Processed exports rose slightly ($1.9 to $2.3 billion), but unprocessed ones fell 70 percent ($6 billion to $1.8 billion) — nearly two-thirds of Indonesia's whole $6.5 billion export decline.
• Investment: more than 50 smelter projects were planned in 2014. But with China slowing and prices low, added processing value may not repay the investment and lost revenue.
• Beyond Indonesia: supply shifted to Malaysian bauxite and Philippine nickel ore, until environmental damage brought a bauxite moratorium in Malaysia and threatened new rules in the Philippines. With similar policies proposed in the Philippines, South Africa and Zambia, other producers are watching.

Sources

Based on Resource Nationalism in Indonesia—Effects of the 2014 Mineral Export Ban, by Graham W. Lederer, USGS Fact Sheet 2016–3072, U.S. Geological Survey; a work of the United States government in the public domain. The three figures are taken from the fact sheet's PDF, which also lists every processing project in its table 1.