JAKARTA/HONG KONG: New Indonesian taxes on metals and curbs on raw mineral shipments are likely to hit exports of nickel and bauxite to China, an industry source said on Friday, highlighting concerns over the impact of the policy changes by Southeast Asia’s biggest economy.
Jakarta aims to boost investment in domestic ore processing to lift exports of higher-value finished metals by the G20 economy through the new rules which come into force on Sunday.
The resource-rich nation is imposing a 20 percent tax on some metal ore exports and will prohibit shipments of raw minerals unless miners submit plans to build smelters.
The rules are likely to affect less than a third of Indonesia’s metal exports but are a precursor to a total ban on raw material exports by 2014.
Around 10,000 holders of mining business permits, mostly small-scale miners in the world’s top nickel miner and tin producer, will be required to produce plans of how they will process and smelt ores within Indonesia ahead of 2014, or face a ban on exporting from Sunday.
“China’s imports of nickel laterite ores from Indonesia may fall sharply after May, which would force Chinese nickel-pig-iron producers to cut production as ore prices rise,” said a trade manager at a nickel pig iron producer in China, which has two ships at an Indonesian port trying to leave by Sunday.
Indonesia supplied around 80 percent of China’s nickel and 53 percent of its bauxite last year, according to PwC data.
Most major miners in Indonesia, such as Freeport-McMoRan and Gold Inc, Vale Indonesia and Newmont Corp hold decade-long Contracts of Work (COW) agreements that they believe protect them against new rules.
State-owned miner Aneka Tambang (Antam), however, said in an email that it worked under the shorter term contracts being targeted by the ruling, but had numerous processing projects due to start production in 2014.
Thursday’s decision brings to an end months of uncertainty for the Indonesian mining industry, which has been unsettled by a series of regulations this year as the country seeks to derive more revenue from a sector contributing about 12 percent of GDP.
The total export value of mining products in February was $2.8 billion, according to Bank Indonesia data.
The duty will be applied to nickel, tin, gold, copper, silver, lead, zinc, chromium, platinum, bauxite, iron ore and manganese. Coal will be ruled upon separately, said mining minister Jero Wacik, leaving open the possibility of a future tax on coal exports in the world’s top exporter of thermal coal.
Indonesia has already imposed similar duties on exports of palm oil and cocoa beans, reducing exports of both and driving investment in the past year in domestic processing to produce higher value products such as margarine and chocolate.
Currently there are no export taxes on metal ores, said an executive at state nickel and gold miner Antam, though some miners have to pay a low single-digit royalty charges.
The May 6 export restrictions on mining business permits orders could help other metal exporters in the region, such as Australia and the Philippines.
Indonesia has already banned exports of raw tin, leaving small-scale producers of nickel and bauxite as the most likely to be affected. Indonesia accounted for 15 percent of the world’s bauxite production and 14 percent of nickel mine output last year.
While the tax and export curbs have been discussed in recent months and were widely expected in some form, analysts and miners said the short two year time-frame to build domestic smelters and the size of the new tax would hurt the industry.
“The government wants to kill a mouse in a rice field, but they’re burning the whole field,” said Tjahyono Imawan, president of the Indonesian Mining Services Association.
Two ratings agencies recently awarded Indonesia investment-grade status in recognition of strong growth and falling debt, though Standard & Poor’s (S&P) last month held its rating one notch below investment grade, citing policy slippage in a reference to the new mining rules.