Policy flip-flop? Indonesia nickel smelter investors fret over possible rule changes

JAKARTA (Reuters) - Indonesian nickel smelter investors fear the government of President Joko Widodo will change rules that have supported prices of the metal, and put up to $12 billion in its budding smelting and mineral processing industry at risk.

Trucks carry raw nickel ore near Sorowako, Indonesia's Sulawesi island, January 8, 2014. REUTERS/Yusuf Ahmad/File Photo

Indonesia banned metal ore shipments in 2014 to push firms to build smelters and shift exports from raw materials to higher-value semi-finished and finished metals.

The ban cost Southeast Asia’s largest economy - the world’s top nickel ore exporter at the time and a major supplier of bauxite or raw aluminum - billions of dollars in lost revenue.

Indonesian government officials have several times said they are studying export rules and the possibility of a policy revision that could allow nickel ore and bauxite shipments to resume. It was not immediately clear when details of any such revision would be released.

Any “relaxation”, though, would be a major policy shift that some investors say would breach Indonesia’s laws and destabilize refined nickel prices that are up nearly 20 percent this year, potentially undermining development of the nation’s newly flourishing nickel smelter industry.

One of the newcomers, the Tsingshan Bintangdelapan Group - a Chinese-Indonesian venture producing nickel pig iron that also opened its first stainless steel plant this year - is expected to soon overtake Brazil’s Vale as Indonesia’s top nickel producer.

Alexander Barus, chief executive of the group, said he was getting calls from investors worried about prices declining if ore exports restart.

“We’ve already brought in $6 billion. Three smelters have been built, power plants and a port. There’s no way we can take this back,” Barus said.

Since Indonesia’s 2014 ban, the Philippines has taken over as the world’s top exporter of nickel ore - most of which goes to China - keeping the market in check.

But plans by Manila for its own ore export ban and moves to shut mines in an environmental crackdown have underpinned this year’s price rally.


Around $12 billion - mostly from China - has been committed to 27 smelter projects for various metals across Indonesia over the last four years, some of them already under construction, said Jonatan Handojo, executive director of Indonesia’s main smelter industry association.

Indonesia’s nickel output could climb by 36 percent to 217,500 tonnes this year, and to 363,000 tonnes in 2017, said another industry group, the Indonesian Smelter and Minerals Processing Association.

Any policy change that would undercut the nickel market or raise questions about regulatory certainty could quickly change that outlook.

For Vale, which has itself invested around $3 billion in Indonesia and will produce 80,000 tonnes of nickel at its Sorowako smelter facility this year, a policy shift would do more harm than good.

“If nickel ore exports resume, even in a limited amount, it would be devastating for many nickel smelter investors,” said Nico Kanter, chief executive of Vale Indonesia.

Not everyone would be upset with looser rules on nickel ore exports, however. Indonesian state miner Aneka Tambang, formerly a nickel ore exporter, has been seeking other revenue streams since the ore export ban came into effect.

“We need revenue to attract bank loans,” Antam CEO Tedy Badrujaman told reporters. Annual exports of up to 20 million tonnes of low-grade nickel ore could help Antam attract smelter project financing amid tighter lending to the sector, Badrujaman said.

Still, Handojo, whose company Indoferro developed the first nickel pig iron smelter in Indonesia, said the country risked losing smelter investors to the Philippines and New Caledonia.

“No investors will want to come to Indonesia because its regulations change,” Handojo said.

“Indonesia will be rubbed off their lists.”

Reporting by Wilda Asmarini; Additional reporting by Bernadette Christina Munthe; Writing by Fergus Jensen; Editing by Tom Hogue