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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Metals Markets Set For Another Shock From This Key Producer

One of the most ground-breaking changes in metals the last year was the Indonesian export ban.

The government-mandated halt to shipments of unprocessed concentrates caused widespread disruptions in several global markets. And triggered bull runs for metals like nickel, as buyers worldwide scrambled to find alternate supplies.

Now it looks like Indonesia's policies may be shifting again. At least for one metal.

Aluminum. Related: The Most Challenging Oil And Gas Projects In The World

Local press reported this week that government officials are considering a reversal of the export ban on unprocessed bauxite -- the feedstock that goes into making alumina and aluminum.

The reports cited comments from a special team established last month by the Indonesian Energy and Mineral Resources Ministry. Which has been studying the effects of the export ban so far.

The head of that group, Said Didu, said Monday they may recommend allowing bauxite miners to once again ship their concentrates overseas. With the group noting that the government's goal of forcing mining firms to build in-country aluminum smelting capacity is not advancing. Largely due to a shortage of funding needed for such projects. Related: T. Boone Pickens Points The Finger At U.S Shale

Officials are thus proposing temporary relief from the export ban as a way to help miners raise funds. At which point the issue of smelter construction could come back onto the table.

A reversal of the export ban would be huge news for the global aluminum market. In 2013, prior to the ban being implemented, Indonesia was the world's second-largest bauxite producer. As the chart below shows, the difference in output under the new rules in 2014 was striking.

IndonesiaAluminum

Source: USGS Related: A Look At The Future Of Nuclear Power

If a right-sizing of exports causes a return of that supply to market, it's going to be great news for aluminum producers -- who will suddenly have good access to raw materials. But bad news for competing bauxite producers in places like Australia and Brazil. Watch for a final decision from Indonesia's government over the coming weeks.

Here's to opening the spigots,

Dave Forest

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