Indonesia Lifts Nickel Export Ban

Last week, Indonesia implemented rules that will now free up the exportation of nickel ore and concentrates of other minerals under particular conditions. This is a dramatic shift in policy by Southeast Asia’s biggest economy and one of the largest global suppliers of nickel. This drastic policy shift may have come as a surprise to some, but a closer look at the Indonesian economy would hint that change was on the horizon.

All unprocessed ore exports were banned in 2014 with the intentions of raising the investments in smelters and mills locally in the islands. Let’s say it didn’t necessarily go according to plan. Since the ban, the Indonesian government has faced a massive budget and drastically missed their 2016 revenue target to the tune of $17.6 billion.

The Indonesian government haven’t publicly addressed the issue but it can be assumed that the resurgence of ore exports is almost directly correlated with increasing revenue. The policy change took effect mid January and as a result, nickel prices plummeted 9.12% in January to 9,971.46 per ton.

The biggest beneficiary of this will be China. Prior to the ban, Indonesia was China’s main supplier of nickel ore and bauxite. Until now, they’ve had to fill this void by seeking elsewhere for their mineral needs which usually led to higher prices.

Reuters has reported that under this new legislation cover areas have been modified and permits may now last up to five years. Also, “Nickel miners must now dedicate at least 30 percent of their smelter capacity to processing low-grade ore, defined as below 1.7 percent nickel.”

This decision by the Indonesian government results in good and bad news for all of the companies operating in the country. This includes Phoenix-based Freeport-McMoRan Copper & Gold (NYSE:FCX) who now are forced to sell up to 51 percent of their used under the new legislation, up from the 30 percent previously required.

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