Home / Metal News / Nickel / The past of banning Mineral Resources in Indonesia: foreign Investment, Minerals, banning and aspiration
The past of banning Mineral Resources in Indonesia: foreign Investment, Minerals, banning and aspiration
Jul 9,2020 17:09CST
translation
Source:SMM
The content below was translated by Tencent automatically for reference.

SMM7: on the afternoon of October 20, 2019, Indonesian President Joko Widodo was sworn in for a second five-year term. In his subsequent inaugural speech, he made a "2045 ambition": to achieve the goal of achieving a gross domestic product of US $7 trillion and an annual per capita income of 320 million rupiah in 2045, making Indonesia the world's fifth-largest economy.

The current Indonesian government has always focused on "fighting the economy". As early as Joko's first term in 2014, Indonesia put forward an economic development plan from 2015 to 2019, including the specific goals of promoting domestic production, stimulating economic growth and improving fiscal balance, especially committed to continuously improving the investment environment, making Indonesia more attractive to foreign investment.

In the Global Business Environment report 2020 released by the World Bank in 2019, Indonesia ranked 73rd, ranked sixth in the second echelon among 11 countries in Southeast Asia, and ranked 106th in 2015.

In addition to increasing efforts to attract foreign investment, the Indonesian government officially launched the "made in Indonesia 4.0" plan and its roadmap in April 2018. As a national strategy, made in Indonesia 4.0 aims to make the economy more competitive and increase industrial value added. Joko believes that worldwide industrial change is a major opportunity for Indonesia's economic development, and he hopes to seize this opportunity to adjust Indonesia's industrial layout and bring Indonesia into the top 10 largest economies in the world by 2030.

Indonesia's Manufacturing Industry Revitalization Plan: "2025 Conception"

As one of the largest economies in Southeast Asia, Indonesia is rich in resources and occupies an important position in oil, gas and tin reserves in the world. According to the statistics of Indonesia's Ministry of Energy and Mines (2013), Indonesia has coal reserves of about 58 billion tons, of which 19.3 billion tons have been proved, of which 5.4 billion tons are commercially recoverable reserves. As there are still many areas with unproven reserves, the Indonesian government estimates that the total coal reserves will reach more than 90 billion tons. Indonesia has huge natural gas reserves, about 1,23589 trillion cubic meters (equivalent to 20.6 billion barrels of oil), of which 24230 trillion cubic meters have been proven. Indonesia has nickel reserves of more than 5.6 million tons, ranking first in the world. Diamond reserves are about 1.5 million carats, ranking first in Asia. In addition, uranium, copper, alumina and other reserves are also very rich.

Due to its rich resources, Indonesia's economy is very dependent on export resources. Experts from the Economic Research Center of the Indonesian Academy of Sciences have said that over the past few decades, Indonesia's economy has developed rapidly by exporting large amounts of commodities such as coal, rubber, palm oil, and so on. Over-reliance on primary product exports while neglecting manufacturing has become a structural problem in the Indonesian economy, with commodities accounting for more than 60% of exports. This means that Indonesia is more vulnerable to fluctuations in global commodity prices.

In 2015, Indonesia's GDP grew by 4.79%, the lowest since 2009. Analysts pointed out that although the Indonesian economy continued to maintain a certain rate of growth, the growth rate further slowed down, mainly because the continued malaise in the international market affected Indonesia's exports of bulk products, the decline in the growth rate of domestic consumption and foreign investment, and the domestic tight monetary policy adopted to curb high inflation and currency depreciation and maintain high interest rates, which was the main reason why economic growth was lower than expected.

In order to reverse the current unfavorable situation, President Joko announced three rounds of economic revitalization plans in succession within a month. the key points include simplifying 89 industrial and trade regulations to facilitate investment, accelerating the implementation of strategic infrastructure projects, lowering corporate loan interest rates, reducing the number of licenses needed to set up factories in mining and industrial areas, cutting energy prices such as oil and electricity, and supporting low-income people and small and micro enterprises. The Indonesian government also hopes to change the development model, increase the proportion of its manufacturing, and enhance its position in the global value chain.

Indonesia has a long history of "longing" for manufacturing. As early as during the administration of Susilo Bambang Yudhoyono (Indonesia's sixth president), the government announced its 15-year medium-term construction plan of the national economy (2011Muth2025) and issued a plan for the revitalization of 10 major manufacturing industries. In order to improve the industrial structure, the government has successively issued adjustment and revitalization plans for 10 major industries, including textiles, iron and steel, automobiles, natural gas, mining, seafood, palm oil, petrochemical, light industrial services and tobacco. Industrial policy focuses on improving the added value of industrial products, expanding the market of industrial products, enhancing the core competitiveness of industrial structure, and establishing an independent and complete industrialization system. Enhance the status of industrial clusters outside Java, especially in eastern Indonesia, and shift the manufacturing base, especially the natural resources processing industry, from Java to other regions.

After his successor, Jokowi, came to power, the new government promised to maintain policy continuity and increased the construction of local industrial parks. In November 2014, Indonesian Industry Minister Salehuxin said that in order to attract domestic and foreign investment and promote the balanced development of various regions in Indonesia, the Indonesian Ministry of Industry will focus on the development and construction of 13 industrial parks in the next five years, seven of which are located in the eastern part of Indonesia. The construction of industrial parks all rely on the advantages of local resources, create a unique upstream and downstream industrial chain, and take the road of sustainable development.

The 13 industrial parks are TelukBintuni Industrial Zone in West Papua Province, with emphasis on petrochemical industry; Halmahera Timur Industrial Zone in North Maluku Province, focusing on nickel smelting industry; Bitung Industrial Zone in North Sulawesi Province; Palu and Morowali Industrial Zone in Central Sulawesi Province, Konawe Industrial Zone in Southeast Sulawesi Province; Bantaeng Industrial Zone in South Sulawesi Province; Batu Licin Industrial Zone in South Kalimantan Province; Ketapan and Landak Industrial Zone in West Kalimantan Province; Kuala Tanjung and Sei Mangke Industrial Zone in North Sumatra Province; Tanggamus Industrial Zone in Lampung Province.

Indonesian Mineral Ban Act: reducing exports of Natural Resources to force Manufacturing to upgrade

In July 2019, the price of nickel, the main raw material of stainless steel, began to soar, mainly because a news about the mineral ban in Indonesia continued to be concerned by the market. In early July, the market reported that Indonesia is expected to stop the export of raw ore in 2022. Although the news went through several twists and turns, it was finally hammered in September. The document makes it clear that the export of all grades of nickel ore in Indonesia will be completely banned from January 1, 2020.

As a matter of fact, Indonesia had a plan to ban the mining industry earlier. In 2009, as Indonesia's domestic smelters began to operate on a large scale, superimposed on the country's terminal downstream to digest smelting products, the Indonesian government began to promulgate the Minerals and Coal Law as soon as the supply chain was gradually mature. the document points out that the export of 65 unprocessed raw ores will be banned from January 12, 2014, and the raw ore must be smelted or refined locally before it can be exported. Among them, China's dependence on larger bauxite and nickel deposits is also among them.

At the barrier where the law is about to take effect, the Indonesian government is actually still hesitant. As the mining ban bill has been opposed by mining companies all the time, the Indonesian government is under strong pressure. At this time, due to infrastructure restrictions, it is expensive to build a smelter in Indonesia. Many mining companies are reluctant to start production and say that if the new policy is implemented, the company will slash production and lay off local employees. Superimposed at this time, Indonesia's economic growth is not optimistic, the implementation of the new policy will greatly reduce government revenue.

With an hour left in the deadline, Indonesian President Susilo Bambang Yudhoyono announced that 66 mining companies would not be affected by the ban to continue to export concentrates until 2017, with only copper, manganese, lead, zinc and iron allowed for export. but nickel and bauxite are still banned.

Indonesia is China's largest source of nickel ore imports. In order to cope with the impact of the new mining policy on domestic supply, mining companies are also actively preparing ahead of time. In order to circumvent Indonesia's ban on raw ore exports, Chinese companies are speeding up the construction of mining industrial zones in Indonesia. The industrial zone adopts the method of "one zone and many parks", that is, one industrial zone and several industrial parks. According to the distribution of resources and infrastructure in Indonesia, a number of mining processing parks are built in related areas, for example, Sulawesi Island is rich in nickel ore. In the future, an industrial park dominated by nickel ore processing will be established here, while Kalimantan has relatively more bauxite, and an industrial park dominated by bauxite processing will be established here.

After Indonesia banned ore exports, countries began to seek alternative resource countries in Southeast Asia. Nickel mines in the Philippines have gradually become popular, and China's total nickel imports from the Philippines peaked in 2014. It is with the rise of the Philippines, and at this time Indonesia's existing ferronickel processing and RKEF (rotary kiln-ore furnace process) capacity simply cannot fully digest the nickel ore produced in that country.

In order to reduce the cost of nickel mining, Indonesia began to relax its ban on nickel ore exports in 2017, approving quotas to allow ore exports according to the processing capacity built by enterprises. Mines that are allowed to export must meet two conditions: 30% of the smelting capacity must be used to process low-grade ores and the rest can be used for export; second, the construction of smelting projects must be completed within five years, and must be verified by the Indonesian government's construction progress every six months, otherwise it will be disqualified. Since May 2017, Indonesia has re-appeared on the list of nickel importers in Chinese customs data. However, the idea of speeding up the construction of domestic smelters has never stopped, which is one of the main reasons for Indonesia to ban mining again in 2020.

Despite opposition from domestic miners and EU lawsuits, the Indonesian government appears to have taken a tougher line and said its policy of restricting exports of nickel ores and other mineral products would not change. "in our national interest, we will face any protest from other countries. We don't have any questions. " After the mining ban so far this year, the schedule of domestic smelters in Indonesia has been further accelerated, but the progress of the smelter has been greatly hampered by the continuing impact of the epidemic at the beginning of the year.

The global pandemic has had a wide impact on the world economy, including Indonesia, where the Indonesian Chamber of Commerce and Industry, (Kadin), has called for urgent measures to maintain foreign exchange balance while protecting the country's economy from the threat of recession. One of the government's economic policies that can be adopted is to relax the operations of (Minerba), the mineral and coal mining sector, especially nickel. Opening up nickel ore exports in the mining industry can generate foreign exchange, and for this policy, the country does not need to spend a budget, the central government only needs to issue an export relaxation policy within a limited period of time. The relaxation can be implemented for six months or even a year in the hope that the outbreak will end soon.

However, the government remains adamant. Yunus Saefulhak, director of mineral development and operations of the ESDM Ministry, said at a meeting in May to approve the amendment to Law No. 4 of 2009 on mineral and coal mining (Minerba), also known as the Minerba Law, that his party does not intend to reopen the export of low-grade nickel ores, and that the export ban has been accelerated since January 1, 2020. The Minister of Energy and Mineral Resources Regulation No. 11 of 2019 provides for a ban on accelerating the export of low-grade nickel ores. This means that as long as there is no new Permen, ban on nickel exports will still apply. The government has no plans to relax plans to ban exports of nickel mines.

Analysis of Chinese Investment in Indonesia

In June this year, at a video press conference on the theme of "Economic Development and Cooperation between China and Indonesia under the New normal of epidemic Prevention and Control," Wang Liping, Economic and Commercial Counsellor of the Chinese Embassy in Indonesia, disclosed that the bilateral trade volume between China and Indonesia from January to April this year reached 24.1 billion US dollars, a slight drop of 0.5 percent over the same period last year. Chinese direct investment in Indonesia reached 1.3 billion US dollars in the first quarter, up 12 percent from the same period last year, continuing to be the second largest source of foreign investment in Indonesia. Under the influence of the epidemic, economic and trade cooperation between the two countries has achieved good results of "commendable and hard-won".

The Xinguan pneumonia epidemic has had a certain impact on economic and trade exchanges between China and Indonesia. Key cooperation projects between the two countries, including the Yawan High-speed Railway, Castle Peak Park, and Weidabe Park, are faced with the problem of blocking the flow of personnel, resulting in project suspension and delay in work, failure to implement the contract on schedule, affecting local economic and social development and the livelihood of thousands of Indonesian employees. He said that under the "new normal" of epidemic prevention and control in Indonesia, the governments and enterprises of China and Indonesia have pioneered and innovated, opening up a "new normal" of parallel epidemic prevention and practical cooperation. After entering the "new normal", most of the 24 Chinese enterprises that had previously suspended work have resumed work.

China has invested in Indonesia for a long time. Indonesia is very rich in mineral resources, and it is also one of the important sources of mineral imports in China. Under the background of the Belt and Road Initiative, the significance of strategic docking and its economic complementary relationship between China and Indonesia. Due to the restriction of the mining ban policy, Chinese enterprises have entered Indonesia to invest and build factories ahead of time. With the participation of Chinese enterprises, the Indonesian industry as a whole has been promoted. Taking the Indonesian stainless steel industry as an example, the Indonesian iron and steel industry as a whole is relatively backward. The scale is small, the equipment is outdated, the efficiency is low, and the industrial chain is incomplete. Most of them are steel rolling or cold processing of simple steel, and they are basically electric furnace steelmaking. However, Indonesia is rich in laterite nickel ore resources, especially under the background of "Belt and Road" international production capacity cooperation, it uses the advanced technology of "RKEF integrated stainless steel process" and Chinese capital to achieve great-leap-forward development, from the beginning to the layout and construction of a complete industrial chain from mining to finished stainless steel.

At the same time, the Indonesian government has also stepped up its policies to attract foreign investment. according to a report earlier this month, Indonesia announced that it would build a new industrial park covering an area of 4000 hectares, of which the first phase of the construction phase covers an area of 450ha. To attract 119 Chinese companies to invest. At the same time, it has brought investment convenience to Chinese investors and adopted a series of policies, such as providing cheap land prices and shortening the examination and approval time for business licenses.

However, investment in Indonesia also faces some problems. According to Indonesian local media reports, the current Indonesian government's policy of banning the export of raw ore has proved to have an effective impact on the national economy. This has prompted the domestic processing and extraction of raw minerals through the construction of smelters, but the power supply in the construction of smelters in Indonesia has been limited. RyadChairil, president of the Indonesia Metallurgical Association, said that the potential of the Indonesian nickel derivatives industry is very great, but there are obstacles to encouraging the development of the Indonesian smelting industry, one of the main obstacles is the limited power supply, because the smelting industry is located adjacent to the location of the mine, the mine is usually located in areas not connected to the power grid.

At the same time, there are also some differences between local workers and Chinese managers and workers because of the differences in management and culture between the two countries, which put pressure on the operation of enterprises. Especially this year, under the influence of the epidemic factors, this situation appears to be fierce, but under the effective communication between the Indonesian government and Chinese enterprises, it has basically been satisfactorily resolved.

In recent years, the comprehensive strategic partnership between China and Indonesia has been further strengthened, and China's "Belt and Road" initiative and Indonesia's "global maritime fulcrum" strategy complement each other, which has brought new opportunities for political, economic and cultural cooperation between China and Indonesia. In addition to the processing and manufacturing industry, Indonesia proposes to become the largest digital economy in Southeast Asia by 2020, and to make the digital economy a new growth point of the national economy, realizing industrial 4.0. Chinese enterprises have begun to invest in the Indonesian data economy by making use of their advantages in the digital economy. In the future, there will be more opportunities for investment cooperation between China and Indonesia in the field of digital economy under the framework of the Belt and Road Initiative, especially in high-end digital manufacturing areas such as artificial intelligence, Internet of things and VR.

2020 China Ni-Cr stainless Steel Industry Market and Application Development Forum

Scan the QR code, apply for participation or join the SMM metal exchange group

Indonesia
nickel
mining
production capacity

For queries, please contact Frank LIU at liuxiaolei@smm.cn

For more information on how to access our research reports, please email service.en@smm.cn

Related news