Indonesia nickel-ore export U-turn throws up investor red flag: analysts

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JAKARTA, Sept 8, 2019 (BSS/AFP) – Indonesia’s surprise plan to roll out a
nickel-ore export ban two years early could scare foreign investors away from
Southeast Asia’s biggest economy, analysts say, as it cements a reputation
for policy flip-flops.
Nickel prices soared this week on supply concerns after Indonesia, the
world’s top producer, announced the ban would start next year instead of 2022
in a bid to process more minerals at home.

Ending exports of bauxite, used to make aluminium, and copper concentrates
is still slated for 2022.
The sprawling archipelago has some of the world’s most abundant natural
resources. But critics say it repeatedly comes up with poorly thought-out and
nationalistic economic policies that make it an uncertain place to invest.

“This decision casts huge doubt in people’s minds about the reliability
and consistency of Indonesian government policy,” said Bill Sullivan, a
Jakarta-based lawyer and mining expert.

“It’s just a wonderful example of something that plays to the very worst
fears of foreign investors… Changing at the drop of a hat and without
warning,” he added.
The sped-up timeline has also alarmed some Indonesian miners who thought
they had more time before the ban came into effect.

Indonesia implemented an ore export ban in 2014 only to reverse course and
relax it in 2017, when the government said companies would have five years to
prepare and start building homegrown smelters — which extract base metals
from ore.
“There have been so many U-turns it would make your head spin,” Sullivan
said.

Indonesian officials said they want to speed up construction of smelters
to churn out higher-value products, rather than just shipping raw ore abroad
— including to top importer China which uses nickel to make stainless steel.

The move is also key for plans to turn the country into an electric-
vehicle hub. Nickel is used in lithium batteries that power gas-free cars.
“The government wants to become a global player and enter the lithium
battery supply chain given the raw materials Indonesia has,” Luhut
Pandjaitan, coordinating minister overseeing mining, said this week.

– ‘Think twice’-

Some foreign firms are investing in nickel-battery processing plants in
Indonesia, including China’s Tsingshan Holding Group, while construction is
underway on some two dozen domestic smelters, according to the government.

“Accelerating the export ban is a good thing,” said Marwan Batubara,
executive director of think tank Indonesian Resources Studies.

“We need to maintain our stocks for domestic needs. Many factories and
smelters won’t have enough raw materials otherwise.”

But some foreign miners, including US-based Newmont, have been turning
away from Indonesia in recent years, as it pushed overseas firms to comply
with new ownership rules designed to give the country more control of its
plentiful resources.

Last year, Indonesia finalised a deal with US mining giant Freeport-
McMoRan to take a 51 percent stake in Grasberg, site of the world’s biggest
gold mine, after years of bitter negotiations. Freeport continues to operate
the giant gold-and-copper facility in easternmost Papua.

“This is not favourable for foreign investment,” Sabrin Chowdhury, a
senior commodities analyst at Fitch Solutions in Singapore, said of the
latest move, adding that previous government policies had forced “a lot of
foreign miners leave”.

Switching to higher-value mining exports could help plug a gap in
Indonesia’s trade balance, as it courts automakers to invest in electric-
vehicle facilities, including Toyota and Korea’s Hyundai.

The very immediate implication is that nickel prices are soaring and this
benefits local miners,” Chowdhury said.

“Indonesia is the world’s largest producer of nickel ore which is used
extensively in EV batteries so it makes sense to invest in the country if you
are an electric-vehicle maker.

“But considering how uncertain Indonesian politics is, if I were an
investor I’d think twice.”

While the ban may help boost the economy as president Joko Widodo kicks
off a second term, it also threatens to scare away firms in capital-intensive
industries that may be eyeing investments in Indonesia, Sullivan said.

“The irony is that is precisely the kind of industry that Indonesia is
trying to attract.”