Industry Trend Analysis - Ban Moderation To Boost Bauxite, Nickel Ore Production - FEB 2017


BMI View: In line with our long-held view, the Indonesian government announced in January 2017 its decision to moderate the mineral ore export ban put in place three years ago. It will allow exports of bauxite and nickel ore and exten d the temporary export permits for copper concentrates. With this latest development, Indonesia ' s production of nickel ore and bauxite will soar; pushing prices down once production comes online.

As per our expectations, on January 12 the Indonesian government moderated the mineral ore export ban that was implemented in January 2014. The prohibition on lower grade nickel ore and bauxite exports was ended, while the temporary export permits earlier provided for copper concentrates were extended, with immediate effect. Miners will be able to export these ores as long as they show progress toward building smelters in a five-year period, such as keeping aside 30% of nickel production for smelting. Apart from export allowance, the government's announcement also came with a strong resource nationalism twist. Foreign miners now have to switch from long-term contracts of work where regulations were more favourable to a mining licensing system in which they must agree to gradually divest at least 51% stakes in their local operations to Indonesian entities. This comes as a hard blow to Freeport Mc-Moran Inc, despite the extension of the copper export permit, as the company was previously required to divest only 30% of ownership to local entities. Thus, not only did our expectation that Indonesia will moderate its mineral ore export ban to allow bauxite and nickel ore exports played out, but our view that resource nationalism will continue to plague Indonesia's mining industry with more handover to locals has also started to come into effect (see: Indonesia Ore Export Policy: ' Three Scenarios For 2017', September 19 2016).

Nickel Equities To Come Under Greater Immediate Pressure Than Prices

Equities Of Global Nickel Miners To Lose, Indonesian Miners To Gain
Equities Of Select Global Nickel Miners (LHC) And Indonesian Miner PT Aneka Tambang (RHC) (USD)
Source: Bloomberg, BMI

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