REFILE-UPDATE 2-Indonesia Tax on Metals Risks China Shipments-Shanghai Metals Market

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REFILE-UPDATE 2-Indonesia Tax on Metals Risks China Shipments

Industry News 10:16:18AM May 07, 2012 Source:SMM

* Jakarta aims to boost investment in domestic ore processing

* 20 pct tax on some exports, curbs on raw material shipments

* Govt has received 82 plans for new smelters out of 400 firms

By Michael Taylor and Polly Yam

JAKARTA/HONG KONG, May 4 (Reuters) - New Indonesian taxes on metals and curbs on raw mineral shipments are likely to hit exports of nickel and bauxite to China and push ore prices higher on world markets, an industry source said on Friday.

The government of Southeast Asia's biggest economy aims to boost investment in domestic ore processing to lift exports of higher-value finished metals. The new rules come into force on Sunday.

The resource-rich nation is imposing a 20 percent tax on some metal ore exports and will prohibit shipments of raw minerals unless miners submit plans to build smelters.

The rules are likely to affect less than a third of Indonesia's metal exports but are a precursor to a total ban on raw material exports by 2014.

Around 10,000 holders of mining business permits, mostly small-scale miners in the world's top producer of nickel and tin, must produce plans on how they will process and smelt ores in Indonesia by 2014 or face a ban on exports from Sunday.

"China's imports of nickel laterite ores from Indonesia may fall sharply after May, which would force Chinese nickel-pig-iron producers to cut production as ore prices rise," said a trade manager at a Chinese nickel pig iron producer, which has two ships at an Indonesian port trying to leave by Sunday.

Indonesia supplied around 80 percent of China's nickel and 53 percent of its bauxite last year, according to PricewaterhouseCoopers data.

Most major miners in Indonesia, such as Freeport-McMoRan & Gold Inc, Vale Indonesia and Newmont Corp hold decades-long Contracts of Work (COW) agreements, which they believe protect them against new rules.

The government, however, says it would like to renegotiate the contracts with Freeport and Newmont.

"We marketed leftover concentrate that we produced at fair market value based on long-term contracts with several international smelters, and we will continue to honor those contracts. But we are willing to sell additional concentrates if it is based on competitive pricing," Freeport said in a statement.

State-owned miner Aneka Tambang (Antam) said in an email that it worked under shorter-term contracts targeted by the ruling but had numerous processing projects due to start production in 2014.

Another miner that doesn't have a COW is Australia's Intrepid Mines.


ENDS UNCERTAINTY

Thursday's decision brings to an end months of uncertainty for the Indonesian mining industry, which has been unsettled by a series of regulations this year as the country seeks to derive more revenue from a sector contributing about 12 percent of GDP.

The total export value of mining products in February was $2.8 billion, according to Bank Indonesia data.


The duty will be applied to nickel, tin, gold, copper, silver, lead, zinc, chromium, platinum, bauxite, iron ore and manganese.

Coal exports will be ruled upon separately, and the rules will be worked on within the next month, government officials said on Friday, leaving open the possibility of a future export tax in the world's top exporter of thermal coal.

Indonesia has already imposed similar duties on exports of palm oil and cocoa beans, reducing exports of both and driving investment in the past year in domestic processing to produce higher value products such as margarine and chocolate.

Currently there are no export taxes on metal ores, said an executive at state nickel and gold miner Antam, though some miners have to pay a low single-digit royalty charges.

The May 6 export restrictions on mining business permits holders could help other metal exporters in the region, such as Australia and the Philippines.

Indonesia has already banned exports of raw tin, leaving small-scale producers of nickel and bauxite as the most likely to be affected. Indonesia accounted for 15 percent of the world's bauxite production and 14 percent of nickel mine output last year.

While the tax and export curbs have been discussed in recent months and were widely expected in some form, analysts and miners said the short two year time-frame to build domestic smelters and the size of the new tax would hurt the industry.

"The government wants to kill a mouse in a rice field, but they're burning the whole field," said Tjahyono Imawan, president of the Indonesian Mining Services Association.

Two ratings agencies recently awarded Indonesia investment-grade status in recognition of strong growth and falling debt, though Standard & Poor's last month held its rating one notch below investment grade, citing policy slippage in a reference to the new mining rules.


CONCESSIONS

Many small miners have been given mining permits by local authorities under Indonesia's decentralized government system, and some may halt exports altogether rather than pay the tax or submit plans to build a smelter.

Much of this ore is shipped to China, often under the radar of central government officials. Some miners have been ramping up nickel exports ahead of the tax, industry sources say.

Government officials have said small miners needed to team up with larger firms investing in smelters to avoid the 2014 ban and that the government will provide industry investment incentives such as tax allowances and tax holidays.

On Friday, mining ministry officials said 82 proposals to build smelters had been received from 400 mining firms.

"This places the government in an advantageous position to demand concessions from miners in return for permission to export," said Jakarta-based risk consultancy Concord Consulting.

The government has said it will negotiate all contracts with miners, including royalties and a recent rule requiring foreign miners to divest at least half their assets after 10 years of production, a change seen as part of a growing trend of global resource nationalism.

 

 

REFILE-UPDATE 2-Indonesia Tax on Metals Risks China Shipments

Industry News 10:16:18AM May 07, 2012 Source:SMM

* Jakarta aims to boost investment in domestic ore processing

* 20 pct tax on some exports, curbs on raw material shipments

* Govt has received 82 plans for new smelters out of 400 firms

By Michael Taylor and Polly Yam

JAKARTA/HONG KONG, May 4 (Reuters) - New Indonesian taxes on metals and curbs on raw mineral shipments are likely to hit exports of nickel and bauxite to China and push ore prices higher on world markets, an industry source said on Friday.

The government of Southeast Asia's biggest economy aims to boost investment in domestic ore processing to lift exports of higher-value finished metals. The new rules come into force on Sunday.

The resource-rich nation is imposing a 20 percent tax on some metal ore exports and will prohibit shipments of raw minerals unless miners submit plans to build smelters.

The rules are likely to affect less than a third of Indonesia's metal exports but are a precursor to a total ban on raw material exports by 2014.

Around 10,000 holders of mining business permits, mostly small-scale miners in the world's top producer of nickel and tin, must produce plans on how they will process and smelt ores in Indonesia by 2014 or face a ban on exports from Sunday.

"China's imports of nickel laterite ores from Indonesia may fall sharply after May, which would force Chinese nickel-pig-iron producers to cut production as ore prices rise," said a trade manager at a Chinese nickel pig iron producer, which has two ships at an Indonesian port trying to leave by Sunday.

Indonesia supplied around 80 percent of China's nickel and 53 percent of its bauxite last year, according to PricewaterhouseCoopers data.

Most major miners in Indonesia, such as Freeport-McMoRan & Gold Inc, Vale Indonesia and Newmont Corp hold decades-long Contracts of Work (COW) agreements, which they believe protect them against new rules.

The government, however, says it would like to renegotiate the contracts with Freeport and Newmont.

"We marketed leftover concentrate that we produced at fair market value based on long-term contracts with several international smelters, and we will continue to honor those contracts. But we are willing to sell additional concentrates if it is based on competitive pricing," Freeport said in a statement.

State-owned miner Aneka Tambang (Antam) said in an email that it worked under shorter-term contracts targeted by the ruling but had numerous processing projects due to start production in 2014.

Another miner that doesn't have a COW is Australia's Intrepid Mines.


ENDS UNCERTAINTY

Thursday's decision brings to an end months of uncertainty for the Indonesian mining industry, which has been unsettled by a series of regulations this year as the country seeks to derive more revenue from a sector contributing about 12 percent of GDP.

The total export value of mining products in February was $2.8 billion, according to Bank Indonesia data.


The duty will be applied to nickel, tin, gold, copper, silver, lead, zinc, chromium, platinum, bauxite, iron ore and manganese.

Coal exports will be ruled upon separately, and the rules will be worked on within the next month, government officials said on Friday, leaving open the possibility of a future export tax in the world's top exporter of thermal coal.

Indonesia has already imposed similar duties on exports of palm oil and cocoa beans, reducing exports of both and driving investment in the past year in domestic processing to produce higher value products such as margarine and chocolate.

Currently there are no export taxes on metal ores, said an executive at state nickel and gold miner Antam, though some miners have to pay a low single-digit royalty charges.

The May 6 export restrictions on mining business permits holders could help other metal exporters in the region, such as Australia and the Philippines.

Indonesia has already banned exports of raw tin, leaving small-scale producers of nickel and bauxite as the most likely to be affected. Indonesia accounted for 15 percent of the world's bauxite production and 14 percent of nickel mine output last year.

While the tax and export curbs have been discussed in recent months and were widely expected in some form, analysts and miners said the short two year time-frame to build domestic smelters and the size of the new tax would hurt the industry.

"The government wants to kill a mouse in a rice field, but they're burning the whole field," said Tjahyono Imawan, president of the Indonesian Mining Services Association.

Two ratings agencies recently awarded Indonesia investment-grade status in recognition of strong growth and falling debt, though Standard & Poor's last month held its rating one notch below investment grade, citing policy slippage in a reference to the new mining rules.


CONCESSIONS

Many small miners have been given mining permits by local authorities under Indonesia's decentralized government system, and some may halt exports altogether rather than pay the tax or submit plans to build a smelter.

Much of this ore is shipped to China, often under the radar of central government officials. Some miners have been ramping up nickel exports ahead of the tax, industry sources say.

Government officials have said small miners needed to team up with larger firms investing in smelters to avoid the 2014 ban and that the government will provide industry investment incentives such as tax allowances and tax holidays.

On Friday, mining ministry officials said 82 proposals to build smelters had been received from 400 mining firms.

"This places the government in an advantageous position to demand concessions from miners in return for permission to export," said Jakarta-based risk consultancy Concord Consulting.

The government has said it will negotiate all contracts with miners, including royalties and a recent rule requiring foreign miners to divest at least half their assets after 10 years of production, a change seen as part of a growing trend of global resource nationalism.