Which Base Metal to Be Hit Hardest By Indonesia’s Export Ban?

The tin story illustrates how the authorities would like to see nickel go. For more on the state of nickel exports, check out the previous post in this series. 
 
Although it took some 10 years and experienced many dramas along the way, not least a near-complete failure to deliver any metal last September, by December 2013 Indonesia shipped a two-year high of 13,562 metric tons, according to Reuters, all of which was refined metal or solder and was first traded on a local exchange before shipment.
 
With few alternatives of the same purity and proximity, Chinese NPI producers are going to have to invest in NPI plants in Indonesia if NPI is going to remain a long-term viable option for the Chinese stainless industry. In the meantime, the uncertainty over supply will cause some support to prices in a wider nickel market that would otherwise be destined to fall due to significant oversupply.
 
And what about bauxite and iron ore?
 
The Indonesian bauxite industry is not in quite so fortuitous a position as the nickel ore industry.
 
Alternatives for Indonesia’s bauxite are many, notably Australia’s struggling bauxite miners, but also India and West Africa. A fully implemented ban may encourage the development of a couple of alumina refineries in the second half of the decade, but the country genuinely risks losing out as China’s largest supplier over the long term. They just don’t have the leverage.
 
Recognizing this may have influenced the government’s relaxation on iron ore until 2017. The case for building steel mills in Indonesia, in a region already characterized by overcapacity is, at the moment, tenuous.
 
The government hopes to push the case for copper, zinc, iron ore, manganese, lead, etc., to be domestically refined by progressively increasing export taxes from 20% or 25% now to 60% in 2016, before exports of minerals with less than 99% purity are banned outright in 2017, according to the FT.
 
The government’s resolve is clear; how successful they will be for metallic minerals apart from nickel remains to be seen.

What This Means for Metal Buyers
With many metals in surplus, the ongoing dramas of export restrictions and bans are unlikely to cause a sustained or excessive rise in world prices, with only nickel and to a lesser extent copper the most likely to be affected over the next year or two.

by Stuart Burns