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'No compromise on nickel ban': Ministry puts foot down on nickel price floor

Jakarta Post - July 27, 2020

Norman Harsono, Jakarta – The government has threatened to sanction nickel businesses that fail to comply with nickel ore pricing regulations and, therefore, pose a risk to the country's plan to develop its downstream mining industry.

Nickel smelters are required to purchase nickel ore at government-pegged prices and nickel miners have to comply with a nickel ore export ban, the Office of the Coordinating Maritime Affairs and Investment Minister's undersecretary of mining, Septian Hario Seto, warned in a statement on July 23.

"Noncompliant companies will be sanctioned, which can be in the form of a warning, cut in export quotas or even permit termination," he said. "The government will not compromise on the nickel export ban."

Indonesia, the world's largest nickel ore producing country, has banned exports of the commodity since January to push miners to develop smelters and refine the metal ore domestically so they can export higher-value products.

Analysts and economists have said that Indonesia's downstream goal has potential, but the fallout between small nickel miners and nickel smelters points at pricing as a key point of contention in the plan.

In protecting small nickel miners, specifically those under the Indonesian Nickel Miners Association (APNI), the Energy and Mineral Resources Ministry implemented on May 13 a monthly price floor (HPM) for domestically sold nickel ore.

The HPM is calculated based on the government's mineral benchmark price (HMA), which is, in turn, based on average refined mineral prices from Beijing, Jakarta and the global benchmark London Metal Exchange (LME).

While APNI lauded the price floor, the Indonesian Smelter Association (AP3I) strongly opposed it, arguing that even after the price floor was implemented, members preferred business-to-business deals to fix prices.

"They know nickel is a global commodity and the world follows LME prices. Prices keep changing and cannot be pegged at one figure on and on," AP3I vice chairman Jonathan Handojo said on July 24.

The Energy and Mineral Resources Ministry regulation allows smelting companies to buy at prices up to 3 percent below the HPM under certain conditions. The regulation also grants the energy ministry the authority to revise the HPM formula once every six months or "whenever needed".

AP3I's experience is not new. Indonesia is known to be a heavily regulated market, particularly when it comes to commodities. The country also has price limits for domestically sold coal and unsubsidized fuel and sugar, among other products.

Jonathan previously hinted to The Jakarta Post that the government never held talks with AP3I over the nickel ore price floor.

APNI – the most vocal opponent to the export ban – publicly raised the issue of smelters' noncompliance in late June, then tried to lobby the government to reopen exports.

"We ask the government to enforce the HPM regulation or if the HPM cannot be enforced, we ask the government to reopen nickel ore exports," APNI secretary-general Meidy Katrin said in a statement on June 22.

The statement included a paragraph explaining the merits of reopening exports, such as higher state revenue and job creation.

Meidy said local nickel miners were selling nickel ore at US$27 per wet metric ton (wmt) in June, lower than that month's price floor of $28.93 per wmt and even lower than the international price of $70 per wmt.

Source: https://www.thejakartapost.com/news/2020/07/27/no-compromise-on-nickel-ban-ministry-puts-foot-down-on-nickel-price-floor.html