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Here's A Critical Policy You Haven't Heard About

One of the biggest drivers of metals markets lately has been governments.

Policy changes in some of the world's largest mineral-producing nations have created big moves in prices. Such as Indonesia's ban on unprocessed exports causing nickel to jump as much as 50% since January. Or India's heavy gold taxes weighing on that market.

And last week we got news of one more shift that could have big effects. Although this critical change got almost no press globally.

The metal is aluminum, and the government is once again India--the world's fifth-largest producer of the aluminum ore bauxite.

And the policy move is aimed at keeping more of India's supply at home. By doubling taxes on bauxite exports going out of the country.

As part of India's new federal budget, export duties will now increase to 20%--from a previous 10%. Creating a major disincentive for exporters, and thus favouring domestic consumption of bauxite.

If the increased export duty does result in lower shipments, the implications for the global market are significant. In 2013, India produced 19,000 tonnes of bauxite. Putting the country just behind fourth-largest global supplier Indonesia in terms of output.

Bauxite supplies from Indonesia are already reportedly being disrupted by that country's export ban. If exports from India now also decline, the worldwide market could see a shortfall of material.

The situation in India isn't likely to improve anytime soon. With the root cause being a state of disarray in the country's mining industry. Which has seen production (and exports) of other commodities like coal and iron ore fall dramatically.

Corruption and political deadlock have made it difficult to tackle to these issues. Suggesting that the need to keep mined supply in the country is going to persist.

Aluminum prices may already be reacting to this situation. With rates for the metal having risen about 3% since India's tax increase was announced. Of course, that market had already been active--with the price up more than 10% since the beginning of June.

Watch for more volatility and potential gains here as the new rules percolate through the system.

Here's to eventful politics,

By Dave Forest

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