[SMM In-Depth Analysis] Three Months to One Year? How Indonesia's New Foreign Exchange Regulations Will Impact the Nickel and Related Industries

Overview of the Foreign Exchange Control Policy for Natural Resource Exports (DHE SDA):

Recently, the Indonesian government's foreign exchange control policy has drawn significant attention.

On February 17, Indonesian President Prabowo issued Presidential Regulation No. 8 of 2025, announcing the Foreign Exchange Control Policy for Natural Resource Exports (DHE SDA). Starting from March 1, 2025, exporters in the mining, plantation, forestry, and fisheries sectors are required to deposit 100% of their foreign exchange earnings into special accounts at state banks for a period of 12 months, excluding the oil and natural gas industries. The new regulation marks a shift, as it mandates companies in these sectors to retain 30% of their funds domestically for at least three months. Officials estimate that this move is expected to increase Indonesia's foreign exchange reserves at the central bank by $80 billion this year. Currently, the Indonesian government is seeking ways to bolster the rupiah. Over the past three months, the rupiah has been one of Asia's worst-performing currencies against the US dollar, due to concerns over global trade tensions, slowing economic growth, and Prabowo's massive spending plans. The prolonged weakness has prompted the Indonesian central bank to intervene in the market to reduce volatility and boost market confidence. Bank Indonesia Governor Perry Warjiyo stated that he expects the expanded foreign exchange earnings regulation to enhance domestic financing, stabilize the rupiah, and improve the stability of the financial system.

Policy Details Review:

Prabowo stated that the regulation will take effect on March 1 this year and will be mandatory for mining exporters. He said: "The new regulation primarily targets mining, excluding oil, natural gas, plantations, forestry, and fisheries, and requires foreign exchange from natural resource exports to be deposited in special accounts at state-owned banks. Oil and natural gas will continue to follow the provisions of Government Regulation No. 36 of 2023. In this amendment, the government has further strengthened the previous regulations." Prabowo explained several key amendments:

1. The government mandates that all foreign exchange from natural resource exports must be deposited in Indonesia's financial system for a period of 12 months. These funds will be stored in special accounts at state-owned banks. Additionally, for oil and natural gas, the previous provisions under Government Regulation No. 36 of 2023 still apply;

2. Payment of taxes, non-tax state revenues, and other government obligations in foreign currencies is permitted;

3. Payment of dividends in foreign currencies is permitted;

4. Payment in foreign currencies for the procurement of raw materials, auxiliary materials, or capital goods that are not or partially available domestically is permitted;

5. Repayment of loans in foreign currencies for the procurement of capital goods is permitted.

Prabowo explained that sanctions will be imposed on exporters who fail to comply with the regulation. In the future, exporters who do not adhere to the regulation may face administrative penalties, such as the suspension of export services. Furthermore, he stated that the Indonesian government still provides room for exporters to maintain business continuity, allowing them to use foreign exchange funds deposited in special accounts at domestic banks for certain business needs. For example, foreign exchange can be converted into Indonesian rupiah at the same bank for operational activities and maintaining business continuity. Prabowo emphasized that this decision aims to optimize the utilization of Indonesia's natural resources and promote the country's economic development. From the perspectives of development financing, domestic capital flow, foreign exchange reserve increases, and exchange rate stability, this regulation holds significant importance.

The Impact of the Policy on the Nickel Industry:

According to SMM, the current legislation primarily targets natural resources, including coal, and does not directly restrict the export of Indonesian nickel processing products such as MHP, high-grade nickel matte, and high-grade NPI. There are currently no direct restrictions on the export of Indonesian nickel processing products. However, Indonesia's foreign exchange controls may lead to increased costs for miners and smelting, thereby affecting the global supply of bulk commodities. For instance, nickel processing requires the import of smelting equipment or chemicals, and the increased difficulty in obtaining foreign exchange may implicitly raise investment costs, causing project delays or capacity constraints. Additionally, foreign exchange controls have significant impacts on exchange rates and market sentiment, potentially leading to price fluctuations in bulk commodities and affecting the global nickel supply chain.

According to SMM statistics, in 2024, Indonesia is expected to export 1.5629 million mt of nickel hydrometallurgy intermediate products (MHP), of which 1.5562 million mt will be exported to China; 304,800 mt of nickel matte, of which 199,900 mt will be exported to China; 163,100 mt of nickel sulphate, of which 74,800 mt will be exported to China; and 9.9634 million mt of NPI, of which 9.155 million mt will be exported to China. As the largest importer of Indonesian nickel products, the implementation of Indonesia's foreign exchange controls may, to some extent, affect market sentiment.

Meanwhile, resources such as coal, which are restricted by the legislation, may further promote the adoption of Indonesia's new coal pricing logic. Previously, Indonesian coal miners used the ICI index for export pricing, but with the introduction of the new regulations, the HBA price may see significant promotion.