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A Powerhouse Decides to Cripple Its Mining Industry

This may be one of the most significant mining stories of 2014. The grinding down of mineral production from world-leading supplier Indonesia.

Loss of output from the country now appears assured. After its House of Representatives voted last week to uphold new mineral processing rules, set to take effect in the new year.

The change involves the type of products coming from Indonesian mines. Stipulating that miners must now produce refined products, as opposed to lower value output like concentrates.

Currently, many of the country's big producers ship concentrate abroad for final processing. As is the case with major copper producer Freeport McMoRan, which exports copper concentrate to foreign smelters.

But the Indonesian government now wants that smelting done in-country. A step that would necessitate the construction of expensive new facilities.

Miners had been hoping for an amendment that would allow them to keep operating while they study how to address the new laws. But the House rejected industry proposals. Meaning that exports of unprocessed ore will be outlawed as of January.

Industry groups have suggested that such measures will lead to an almost complete shutdown of domestic mining operations. These operations simply don't have the capacity right now to upgrade ore to required specs.

This could mean a major disruption in supply of several key metals. Indonesia currently produces 15% of the world's nickel. And a significant amount of copper and bauxite.

The loss of this output would be significant to pricing for these commodities. Barring an eleventh hour patch to the new laws, it looks like we'll find out soon just how severe the effects will be.

Here's to seeing it coming,

By. Dave Forest




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Leave a comment
  • Bill Wyness on December 09 2013 said:
    A prime example of an authoritarian regieme still believing that in a geopolitically shrinking world with liberalizing trade rules and national borders becoming more porous, that using the stick rather than the carrot will be effective, and will likely demonstrate how to get exactly what is not desired, rather than increased foreign capital investment. It will shift Indonesia's export trade earnings more to the tech sector where more offshore better capitalized competition already exists, and away from a primary economic generator. Why buy Canadian tar sands equity when onshore opportunites exist?

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