--Clyde Russell is a Reuters columnist. The views expressed are
By Clyde Russell
LAUNCESTON, Australia, July 24 The election of
reformist Joko "Jokowi" Widodo as Indonesia's new president has
spurred hopes of a rapprochement with global miners and the
scaling back of some of the nationalistic resource policies.
Certainly the new leader of the world's fourth-most populous
nation is making the right noises, telling Reuters in an
interview published July 22 that he wants to sit down with
mining companies and resolve differences.
And indeed this was followed by Freeport-McMoRan,
which owns the giant Grasberg copper mine, saying it expects to
"imminently" sign an agreement with Indonesia that will allow
for the resumption of exports of copper concentrate.
Newmont Mining Corp also said it was close to a
memorandum of understanding with the government that would allow
it to resume exports of copper concentrate and re-open its Batu
These negotiations with the two U.S. mining giants, which
account for 97 percent of Indonesia's copper output, have been
ongoing for months, so it's not clear that Jokowi had any
influence on the talks, but equally his election victory may
have provided momentum to the talks.
The dispute over copper has been around an export duty on
copper concentrate, which was to be followed by a ban on
exporting any unrefined copper in 2017.
The two U.S. companies are seeking a reduced export duty and
financial incentives to build new copper smelting capacity.
While it appears a compromise is on the cards, copper isn't
the main game in Indonesia and the resumption of exports won't
have much impact on global markets.
Indonesia isn't among the top 10 copper producers in the
world, ranking 13th in 2013, according to the U.S. Geological
If anything, Indonesian copper exports will add to the
surplus market expected this year, putting downward pressure on
prices, although this should be balanced against an improving
demand outlook on faster Chinese and U.S. economic growth.
The commodities that may be more affected by Jokowi's
victory in this month's presidential poll are nickel and
Until the ban on exporting raw ores came into effect in
January, Indonesia was the world's top exporter of bauxite, used
to make alumina, and vied with the Philippines for top global
Since then, exports have plunged to virtually zero, a loss
of about $500 million a month in dollar earnings, which is
increasing the current account deficit at a time of rising
Jokowi may consider relaxing parts of the ban, if comments
by Darmawan Prasodjo, an economic adviser to the new president,
are taken at face value.
"If you want to build a smelter, what do you need? Well, for
now, exports should be opened, and power stations need to be
built to meet their electricity needs, with competitive rates,"
However, this implies that miners will still have to be
committed to building facilities to process ores in Indonesia,
and any relaxation of the ban is likely only if firm building
plans for smelters are in place.
END OF EXPORT BAN UNLIKELY SOON
This means that a resumption of nickel and bauxite exports
is unlikely any time soon, given it will take several months for
Jokowi's new administration to be in place, and possibly even
longer to negotiate a secure coalition in parliament, where the
parties backing the new president lack a majority.
London nickel prices have gained 37 percent so far
this year as the market belatedly realised the Indonesian ore
ban was for real, thus creating a structural shortage once
Chinese stockpiles built up ahead of the export ban were used.
However, nickel is down nearly 11 percent from its 2014 peak
in mid-May as the market realised that there was still plenty of
nickel available and some of the 29 nickel-smelting projects in
Indonesia may come onstream in time to prevent serious
The other area where Jokowi may seek to bring certainty is
in coal, which accounts for some 85 percent of Indonesia's
mineral earnings, making the Southeast Asian nation the world's
top shipper of thermal coal for use in power plants.
Coal miners have complained about a lack of certainty over
proposed changes to export royalties, production caps and
domestic reservation policies.
It's also estimated that as much as 50 to 60 million tonnes
of coal is exported illegally, compared to legal exports of
around 400 million tonnes.
While Jokowi is unlikely to backtrack on the policy of
adding value to mineral output, he may be able to bring more
consistent policymaking and a more collaborative approach to the
This alone would be a welcome change from the outgoing
administration of President Susilo Bambang Yudhyono, but getting
all the disparate interests and parties in Indonesia to pull in
the same direction will be an enormous undertaking.
(Editing by Muralikumar Anantharaman)