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On 4 May 2023 Indonesia Investments released the April 2023 edition of its monthly report. The report discusses a range of subjects related to the economy, politics and social matters that we found were relevant in April 2023.
On 6 June 2022 Indonesia Investments released its latest monthly report. As usual, our report offers independent, objective, and in-depth analyses of key economic, political and social topics that were in the news in Indonesia over the past month.
Vale Indonesia, Indonesia's largest nickel producer, may need to scrap its plan to build a USD $500 million smelter in Bahodopi (South Sulawesi) as its strategic Chinese partner, for now, backed away from the project due to falling nickel prices. Initially both sides agreed to form a joint venture for the establishment of the smelter.
The nickel price is expected to remain under pressure up to (at least) the second half of 2018 due to the structural oversupply in the world market. So far this year the nickel price has fallen 9.38 percent to USD $9,080 per ton (London Metal Exchange). Analysts of the Goldman Sachs Group Inc. say nickel - used in stainless steel - is the worst-performing metal so far this year.
Although Indonesian nickel miner Vale Indonesia saw its sales rise by 32.4 percent year-on-year (y/y) to USD $143.95 million in the first quarter of 2017 supported by the 24.1 percent (y/y) growth in the (average) nickel matte price in Q1-2017, the company is pessimistic about the direction of the nickel price in the remainder of 2017 as inventory levels remain high on the London Metal Exchange and Shanghai Futures Exchange.
Eight commodity prices have been rising steadily so far this year on higher global demand. This rebound is expected to continue into 2017 although it will require a long time to touch the levels that we saw in 2011. The World Bank noted in a report released on 4 October 2016 that the prices of eight commodities - coal, crude oil, crude palm oil, copper, iron ore, tin, nickel and gold - have been rebounding so far this year. Rising commodity prices will support economic growth of Indonesia as Southeast Asia's largest economy is one of the world's largest commodity exporters.
Indonesian miners may be allowed to resume bauxite exports after a government official signalled that the Indonesian government is looking at relaxing its (raw) mineral export ban. This ban, implemented in January 2014, was introduced in an effort to boost domestic processing capacity, generate more revenue (by adding value to its mineral products) and enhance employment opportunities in Southeast Asia’s largest economy. However, amid the lack of domestic smelting capacity, the export ban has led to a plunge of exports.
Official data show that in 2014 China, the world’s largest consumer of industrial metals, imported the lowest amount of nickel ore since 2010. Apart from slowing economic growth in the world’s second-largest economy (China’s economic expansion having eased to 7.4 percent year-on-year in 2014), falling nickel ore imports are also caused by Indonesia’s ban on exports of unprocessed minerals (implemented in January 2014) and monsoon rains in the Philippines (limiting production and seaborne trade).
State-controlled mining company Aneka Tambang (Antam) feels the negative impact of the Indonesian government’s new mining law (Law No. 4 of 2009 on Mineral and Coal Mining) which replaced its 1967 predecessor. This new mining law is controversial because it contains a number of provisions that are negative for foreign investment in Indonesia’s mining sector. However, domestic players also feel the impact because of the mineral ore export ban, part of the mining law, which was implemented on 12 January 2014.
Indonesia Investments updated the company profile of PT Vale Indonesia Tbk. Vale Indonesia, a subsidiary of the world's second-largest mining company headquartered in Brazil, is Indonesia's largest nickel producer. The company explores, mines, processes and produces nickel in matte, an intermediate product, from lateritic ores at its mining and processing facilities near Sorowako on the island of Sulawesi. At end 2013, Vale Indonesia had proven mineral reserves amounting to 94.2 million metric tons (Mt) and probable mineral reserves of 33.3 million Mt.
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Over the past decade we have seen some examples of protectionist tendencies in the mining sector of Indonesia. For example, gold and copper miner Freeport Indonesia came under Indonesian control in late-2018 after the state acquired a 52.1 percent stake in the company as a consequence of renegotiations (which also involved the extension of the company’s mining permits in Indonesia).
If we take a look at Indonesian companies that went public in 2023 (becoming listed companies on the Indonesia Stock Exchange, or IDX), we see a couple of companies focused on nickel production, or nickel smelting and refining that made their trading debuts in Indonesia.
In recent times, commodities have been ‘hot’. The rebound in economic activity after the COVID-19 pandemic (in combination with disrupted supply and logistics chains) started a high commodity price cycle. This cycle that was subsequently strengthened by the Russo-Ukrainian war.
It is now about one month after the national Idul Fitri holiday when millions of city-dwellers travelled by air, road, rail and water back to their places of origin to spend a couple of days with their (extended) families. The positive news is that this huge movement of people did not lead to an increase in the number of COVID-19 cases in Indonesia.
Vale Indonesia, Indonesia's largest nickel producer, is one of those mining companies that has been plagued by low commodity prices. Various securities companies have cut their recommendation for the purchase of Vale Indonesia's shares due to persistently low nickel prices. Net profit of Vale Indonesia is expected to decline by 50 percent (y/y) to USD $26 million in 2016 as the company's average nickel sales price is expected to fall 29.5 percent (y/y) to USD $6,848 per ton this year.
At the start of 2014 Indonesia introduced its long-planned export ban on raw mineral ores in a bid to strengthen the domestic economy by reducing its dependence on raw commodity exports and instead forcing miners to process their raw ores domestically before exporting is allowed. Being an important global supplier of certain ores, this new Indonesian rule (stipulated by Law No.4/2009 on Coal and Mineral Mining) has a considerable impact on global markets and prices, one of which being nickel.
Chinese ferronickel producer Virtue Dragon Nickel Industry plans to invest USD $5 billion for the establishment of a nickel smelter, power plant and a port. Andrew Zhu, President Director at Virtue Dragon Nickel Industry said that these facilities will be built on a 500-hectares estate in Konawe (Southeast Sulawesi). Zhu said that the nickel smelter development involves three phases. In the first phase, which should be finished by the end of 2015, the smelter will have an annual ferronickel production capacity of 600,000 tons.
The global nickel price declined 5.1 percent on Tuesday (09/09) after it became known that the Philippines would not implement a ban on exports of this commodity yet. Similar to Indonesia, the Philippines was preparing to implement a ban on exports of unprocessed minerals in an attempt to boost revenues (by exporting mining products with added value). However, it may take seven years before such a policy is implemented. This implies that the occurrence of a possible shortage of nickel on the global market in the coming years has diminished.
The Indonesian Ministry of Energy and Mineral Resources announced that 25 miners holding a Mining Business License (Izin Usaha Pertambangan, or IUP) have finished construction of their smelters in the first half of 2014 in line with Law No. 4 of 2009 on Mineral and Coal Mining (also known as the 2009 New Mining Law), which foresees a ban on exports of unprocessed minerals. General Director at the ministry, R. Sukhyar, said that some of these 25 smelters are still in the commissioning stage, while others are already in the production stage.
Starting from 12 January 2014, the export of all mineral-ores are banned in Indonesia. This controversial new policy, stipulated by the 2009 Mining Law (on Minerals and Coal Mining), was agreed upon by the nine fractions in Commission VII of the Indonesian parliament (DPR). Through this new law, the government intends to increase the value of exports while reducing dependence on raw exports and thus becoming less vulnerable to price downswings on the global commodities market.
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