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Alumina Outlook might get influenced by Indonesian SC’s ruling against a ban on bauxite exports
Edited by : AL CIRCLE
2 min read
In May of this year the Indonesian Government imposed a ban on the export of unprocessed raw materials but this week the Supreme Court of Indonesia set aside the ban, meaning the government is no longer permitted to interfere with the mineral exports industry.
This conflict between the Supreme Court and the Government is significant as Indonesia is a major global exporter of materials such as thermal coal, tin, nickel-bearing laterites and bauxite. For each of these, Indonesian exports are critical to global supply.
The likely biggest impact will be on global bauxite trade, as UBS suggests Indonesian exports may recover from around one million tonnes per month now to pre-June levels of more than five million tonnes per month.
If the bauxite price falls as a result of Indonesian exports increasing then UBS sees China as likely to import more bauxite from Indonesia to convert to alumina. Given Indonesia previously supplied around 15% of the world's bauxite, this means China would buy less alumina on the global market.
UBS suggests this could be viewed by commodity and equity markets as a new bear-point for the global bauxite and alumina markets, but such an outcome may be fleeting in the broker's view. This is because the Indonesian Government remains determined to reform the nation's mining industry to lift tax revenues, develop a manufacturing sector and lower the environmental impact of operations.
This development is needed as apart from tin smelting, there is very little vertical integration in Indonesia's mining sector. The 2009 Mining Law intended to ban all raw material exports beyond 2014 was put in place in part to address this, with Credit Suisse noting the ban imposed in May was a response by the government to the 2014 ban being widely ignored by Indonesian mining companies.
The Court ruling appears to relate to an inappropriate authority acting for the government in imposing the ban in May, which suggests a quick resolution to the current dispute. Important for the longer-term, UBS points out the latest Court ruling doesn't alter the 2009 Mining Law.
This conflict between the Supreme Court and the Government is significant as Indonesia is a major global exporter of materials such as thermal coal, tin, nickel-bearing laterites and bauxite. For each of these, Indonesian exports are critical to global supply.
The likely biggest impact will be on global bauxite trade, as UBS suggests Indonesian exports may recover from around one million tonnes per month now to pre-June levels of more than five million tonnes per month.
If the bauxite price falls as a result of Indonesian exports increasing then UBS sees China as likely to import more bauxite from Indonesia to convert to alumina. Given Indonesia previously supplied around 15% of the world's bauxite, this means China would buy less alumina on the global market.
UBS suggests this could be viewed by commodity and equity markets as a new bear-point for the global bauxite and alumina markets, but such an outcome may be fleeting in the broker's view. This is because the Indonesian Government remains determined to reform the nation's mining industry to lift tax revenues, develop a manufacturing sector and lower the environmental impact of operations.
This development is needed as apart from tin smelting, there is very little vertical integration in Indonesia's mining sector. The 2009 Mining Law intended to ban all raw material exports beyond 2014 was put in place in part to address this, with Credit Suisse noting the ban imposed in May was a response by the government to the 2014 ban being widely ignored by Indonesian mining companies.
The Court ruling appears to relate to an inappropriate authority acting for the government in imposing the ban in May, which suggests a quick resolution to the current dispute. Important for the longer-term, UBS points out the latest Court ruling doesn't alter the 2009 Mining Law.
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