Global Courant
JAKARTA – Indonesia is under fire from the World Trade Organization and the International Monetary Fund (IMF) over the government’s apparently haphazard policy of banning the export of mineral ore. According to Jakarta, market intervention is just and necessary to maximize economic and industrial growth.
In a strongly worded statement accompanying the 2022 country report, the IMF called on Indonesia to phase out restrictions and not expand to other commodities. “The increasing use of trade measures and industrial policies can destabilize the multilateral trading system,” the IMF said.
The Joko Widodo government has so far been unyielding, insisting that Indonesia is well within its right to add value to its minerals, especially nickel, bauxite, copper and tin, to become a new industrialized state .
Nickel exports were banned in January 2022 and bauxite shipments followed on June 10. Following are the tin and copper bans. “We must dare to take these steps,” said Widodo, a fervent advocate of added value policy, last year.
Economic Coordination Minister Airlangga Hartarto described the efforts of developed countries and international organizations to control other countries’ export policies as a form of contemporary colonialism that will hinder Indonesia’s economic growth and development.
The WTO ruled last November that restrictions on Indonesia’s mineral exports violated Article XI of the 1994 General Agreement on Tariffs and Trade, but US opposition means there is no mechanism to enforce the decision through the organization’s dispute resolution panel.
The European Union (EU), which has lodged the complaint with the WTO, said the nickel ban unnecessarily and illegally restricted the EU’s access to raw materials needed to produce stainless steel, thereby limiting the production of mineral ores on the disrupted the world market.
The WTO panel has argued that Indonesia’s measures were not covered by the exemption for bans or restrictions temporarily applied to prevent or alleviate critical shortages of products essential to Indonesia. What happens next is not clear, but Indonesia has made it clear that it will not back down.
A nickel mine in Sulawesi, Indonesia. Joko Widodo’s government has banned the export of the raw mineral. Image: Twitter
Despite Indonesia’s large export volume of minerals, the mining sector contributed only 5% to gross domestic product (GDP) in 2019. After the government introduced the nickel ban, the added value of the mineral alone increased from $1.1 billion to $20.8 billion in 2021.
Predicting that figure to rise to more than $30 billion, Widodo said, “That’s just one commodity. The government will continue to consistently downstream so that added value is enjoyed domestically for the advancement and well-being of the people.”
He estimates that the industrialization of bauxite, mainly found in West Kalimantan, will boost revenues from $1.3 billion to $4.1 billion because of the added value of the ban. Eight bauxite smelters currently under construction will increase existing production from 4.3 to 9.1 million tons.
But progress has been painfully slow, and the government’s loss of patience in imposing the export ban may be because bauxite ore exports brought in just $500 million in the first nine months of 2022, or 20% of the value of bauxite ore exports. copper concentrate, which is already 95% refined metal.
Progress on copper giant Freeport Indonesia’s (PTFI’s) new $3 billion copper smelter at Gresik in East Java is similarly slow and will now be commissioned in May next year, the deadline for the implementation of the export ban.
PTFI is also majority-owned by the government, which in 2018 took a majority stake in US mining giant Freeport McMoRan Copper & Gold, still the operator of the hugely profitable Grasberg mine in Papua’s central highlands.
Indonesia’s Amman Mineral Nusa Tenggara is about half way through construction of a third copper smelter at the site of the Batu Hijau copper and gold mine on the island of Sumbawa.
However, critics of the policy point out that one mineral ban does not necessarily work for the other. While welcoming Indonesia’s value-added efforts, the IMF said they should be accompanied by a comprehensive cost-benefit analysis and designed to minimize cross-border spillovers.
Brazil, Canada, China, Japan, South Korea, India, Russia, Saudi Arabia, Singapore, Turkey, Ukraine, the United Arab Emirates and the US have all joined as third parties in the EU nickel dispute at the WTO.
The 2022 U.S. Inflation Reduction Act, which marks the most significant action Congress has taken on clean energy and climate change, provides up to $7,500 in subsidies for electric vehicles (EVs) that contain a certain percentage of critical minerals found in the US are processed.
EU President Ursula von der Leyen also recently proposed passing a Critical Raw Materials Act to address the 27-nation organization’s reliance on imports of critical raw materials.
Home to 22% of the world’s nickel reserves, concentrated in Sulawesi and Maluku, Indonesia’s ban has led to major shifts in the supply chains of electric cars and other strategic products such as rocket engines.
Over 75% of nickel is processed into stainless steel, but it is also critical to the manufacture of cathodes for EV batteries, which currently consume only 7% of global production.
Industry Minister Agus Kartasasmita (far left) together with Coordinating Economy Minister Airlangga Hartarto (second from left) and President Joko Widodo (third from left) visiting the PT Obsidian Stainless Steel (OSS) production line, during a series of events for the inauguration of the China-invested nickel smelter plant PT Gunbuster Nickel Industry (GNI) in Konawe, Southeast Sulawesi, in a file photo. Image: Twitter/Doc Palace/Agus Suparto
For that reason, car companies are trying to secure nickel supplies from Indonesia and other suppliers such as the Philippines, New Caledonia, Russia, Canada and Australia.
The world’s two largest economies, the United States and China, have limited nickel reserves and are heavily dependent on imports of nickel ore or refined nickel.
China remains the world’s largest nickel importer, but over the past decade, Chinese companies have poured $14.2 billion into three major Indonesian processing complexes to lock up supplies for the foreseeable future.
While Indonesia may have the largest reserves in the world, they contain mostly grade 2 nickel, which is not suitable for EV batteries. Recent efforts have been made to develop ways to convert class 2 to class 1.
The most effective process involves leaching high pressure acid (HPAL) from the grade 2 ore to produce mixed hydroxide precipitate (MHP), which is then further refined to where it can be used for battery cathodes.
However, the operation is costly, requiring large amounts of water and considerable energy – in this case equivalent to about one-sixth of the capacity of Indonesia’s main Java-Bali power grid. It also produces toxic residues.
The two main production facilities in Morawali, Central Sulawesi, and Weda Bay, Maluku, will eventually rely on 5,400 megawatts of coal-fired power, leading potential customers to question whether the process meets environmental, social and corporate governance standards ( ESG).
Another major ESG issue is the environmental degradation caused by nickel mining in eastern Indonesia, which is turning the sea red in some areas and destroying coastlines.
Meanwhile, Indonesia continues its efforts to create a global nickel cartel, similar to that of the Organization of the Petroleum Exporting Countries (OPEC), which seeks to coordinate member states’ petroleum policies and output to keep oil market prices high and stable .
Investment Minister Bahlil Lahadalia says Indonesian trade officials are in “intensive talks” with three other unidentified nickel suppliers, following Widodo’s attempt to pitch the plan to the G7 summit in Hiroshima, Japan, where he was an invited participant.
“I hope that G7 countries can become a partner in this industrial downstream policy,” he said on the presidential secretariat’s website. “It’s time to create an OPEC-like group for other products like nickel and palm oil.”
Indonesia has imposed a ban on the export of raw nickel that the EU, WTO and IMF all oppose. Image: Facebook
Bahlil first proposed the idea of a nickel cartel to Canada’s International Trade Minister, Mary Ng, on the sidelines of their G20 summit in Bali; Canada has two million tons of nickel reserves, with mine production reaching 134,000 tons in 2021.
The average price of nickel rose to a record $25.83418 per ton last year, up $7,000 from 2021 due to battery demand. Previously, the price was tied to stainless steel production, peaking at $20,390 in 2012.
Bahlil notes that EV-producing countries have their own protectionist policies and says Indonesia and other commodity producers want to ensure they get the optimum added value from their inputs for the fast-growing industry.
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