(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Andy Home
LONDON Jan 13 Indonesia's tin exports surged in
December to a two-year high of 13,562 tonnes.
That was decidedly good news for global tin users.
The tin market is characterised by structural supply
shortfall and Indonesia is the world's largest exporter of the
metal. So when exports plunged in September due to a new raft of
export rules, there was understandable consternation as to how
long it would take for shipments to normalise.
A couple of months, it turned out. Full-year 2013 exports
dropped by 7 percent to 91,613 tonnes, but that was much better
than might have been expected when flows all but ground to a
halt in September.
The rebound in exports at the end of last year will also,
though, be construed as decidedly good news by the Indonesian
Following a 10-year war of attrition against the miners and
smelters clustered on the tin-rich islands of Bangka and
Belitung, the government has finally achieved its goal of
eliminating exports of unprocessed tin. Everything that was
exported in December was in the form of refined metal or tin
solder and it was traded on a local exchange before shipment.
Tin is the historical template for the broader ban on
exports of unprocessed minerals that kicked in this weekend.
As ever with Indonesian minerals policy, there has been
last-minute drama in the form of a presidential decree exempting
some minerals, most notably copper concentrate, and some
But if tin is anything to go by, there should be no doubting
Indonesia's commitment to forcing its mining sector into
value-add processing, however tortuous the path in getting to
Tin, however, may yet prove to be a problematic template in
terms of the longer-term future of Indonesia's mining sector.
FACTBOX: Indonesia issues regulations easing mineral export ban:
TAKE A LOOK: Indonesia mining industry in disarray after export
THE TIN WAR
The first shot in Indonesia's tin war was fired in 2002,
when the government decreed a ban on exports of tin concentrates
and ores. That was seven years before the 2009 law covering
other minerals that is only now coming into effect.
The target of the tin ban was the host of small miners
tapping the alluvial tin deposits on the islands of Bangka and
Belitung. Mostly operating without any sort of government
licence, they were accused of causing widespread environmental
Over time the ban led to the proliferation of small-scale
smelters, some of which proved as difficult to control as the
Smelters were raided and some were forcibly closed for
buying illegal ores. There were protests, sometimes violent, by
affected workers. Quotas came and went, exports ebbed and flowed
but the authorities gradually exerted increasing control over
the fractured and fractious tin sector.
September marked the culmination of this long war of
attrition with the implementation of minimum purity standards
and a requirement that all exports first be traded on the
Indonesian Commodity and Derivatives Exchange (ICDX).
Foreshadowing the uncertainty of the last few days, the
details of the rule changes were only released at the eleventh
The stipulation that tin had to be traded on the ICDX before
shipment was a complete surprise and the prime cause of the
sharp drop in September exports since so few players, either
Indonesian or international, were actually registered with the
ICDX volumes have steadily increased from just 795 tonnes in
September to over 8,000 tonnes in December.
That's partly thanks to a last-minute concession on the
purity standards. The most liquid contract has been that for tin
with a minimum lead content of 300 ppm. Under the original
proposals exports of such metal would have been banned.
There may be some more tightening of the purity screws but
for now Indonesia has largely achieved what it set out to do 10
There's been similar drama with this weekend's ban on other
unprocessed minerals with a presidential decree exempting some
minerals and some local producers who have started work on
building processing plants.
The exemptions to copper, zinc, lead and iron ore are only
Unprocessed exports will be banned from 2017 and there will
be steep increases in taxes over the intervening period
progressively penalising overseas shipments.
The concession benefits Freeport McMoRan and Newmont
Mining, which operate the Grasberg and Batu Hijau copper
Both supply feed to the country's sole copper
smelter/refinery but both are also large exporters of copper
concentrates. Both are major local employers and both have
argued with some justification that copper in concentrate form
has already captured most of the value-add in the copper
But the lesson to be drawn from the tin war is that the
Indonesian authorities are going to stick with the longer-term
goal of forcing the local conversion of concentrates into
That's a major headache for both operators and leaves a
significant question-mark hanging over the nature and timing of
future Indonesian copper supply.
A sign of that Indonesian single-mindedness is the fact that
nickel ore exports have just been banned despite the inevitable
negative impact on the local economy resulting from wholesale
redundancies and reduced tax revenues.
As with tin, it seems, the authorities are prepared to take
some short-term pain for the sake of the long-term gain.
And as with tin, there is a good chance the hard-line stance
will be vindicated...eventually.
Indonesia can largely do what it wants with its tin sector
because it knows there is no alternative supplier to grab market
Similarly with nickel ore. China's nickel pig iron (NPI)
sector has become increasingly dependent on Indonesia for its
ore because the country produces the quality required to feed
the new generation of rotary kiln NPI plants.
Ore from the Philippines, the second largest supplier to
China, is of a lower quality. And although China has stocked up
on Indonesian ore ahead of this weekend's ban, those stocks will
not last forever.
Assuming no more concessions, it is clear that Chinese
operators will have to start investing in NPI facilities in
Indonesia, if they want to continue using the country's ore.
A PROBLEM TEMPLATE
Indonesia, though, does not have a similar strangle-hold on
other raw materials.
Chinese aluminium producers, for example, have also come to
rely heavily on Indonesian bauxite. They too have built up
significant stocks ahead of the ban.
But unlike their NPI peers, China's alumina refineries can
look for alternative sources, a process that has already begun,
judging by the recent growth in bauxite imports from the likes
of Australia, India and West Africa.
Indonesia may get a couple of alumina refineries over the
next few years, but there is an equal risk that it will simply
lose out to other bauxite suppliers.
It is also quite possible that the world can live without
Indonesian iron ore, if the investment case for building steel
plants in the country doesn't stack up.
The success of Indonesia's tin policy, in other words, may
not be so easily replicated in other mineral sectors. Only in
nickel does the country enjoy the equivalent supply leverage
necessary to force value-add processing.
Existing operators may have little choice but to go down
that path, but future investors may think twice.
Fortunately for Indonesia, there are no obvious alternatives
to the tin deposits of Bangka and Belitung or the type of nickel
ore now relied on by China's NPI sector.
Unfortunately for Indonesia, the country does not have a
similar monopoly on other minerals.
(Editing by William Hardy)