Indonesia sets price floor for nickel ore to protect small miners

The government has put a floor under the price of nickel ore to protect small miners amid Indonesia’s aggressive efforts to develop downstream mining industries.

Energy and Mineral Resources Ministry Regulation No. 11/2020 mandates using Indonesia’s monthly mineral ore benchmark price (HPM) – previously used to calculate mining royalties – as a price floor for transactions. The regulation was issued on April 14 and is to take effect on May 13.

Ministry spokesman Agung Pribadi told The Jakarta Post on Friday (24/4) that the regulation was meant to “ensure nickel sales complied with market prices, so that miners, particularly nickel miners, were guaranteed fair prices.”

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).

The Indonesian Nickel Miners Association (APNI), which had lobbied for such a floor, lauded the regulation, but a representative of the Processing and Smelting Companies Association (AP3I) slammed the regulation, as it would limit members ‘ability to adjust to global market fluctuations.

The regulation follows Indonesia’s recent ban on exporting nickel ore to spur domestic smelter development. The ban was strongly protested by the APNI, whose members comprise small miners, amid concern over such miners’ ability to finance smelters.

The price floor applies to all metal ore and coal sales, but the APNI has been more vocal than other metal miners, as the nickel ore ban starts this year. The ban on other metal ore exports starts in 2022 and for coal in 2046, under existing regulations.

“The APNI’s struggle for the past three years has not gone to waste,” said APNI secretary-general Meidy Katrin on Thursday.

All miners have been asked to build smelting facilities before the ban. Small miners that cannot afford their own smelters have to sell their ore to nearby smelters.

Meidy previously told the Post that 19 of APNI’s 281 members had suspended smelter development due to the export ban. The 19 members had laid out financing plans assuming the ban begins in 2022. The government then abruptly brought the ban forward to 2020.

Meidy had said in January that nickel producers had sold nickel ore domestically at $18 to $20 per ton since 2016. Prices are only slightly higher than their average production cost of $19.62 per ton and lower than the HPM of $30 per ton for that month.

Further down the supply chain, AP3I vice chairman Jonathan Handojo told the Post that processing and smelting companies disagreed with the government controlling nickel ore selling prices.

“Mineral commodity prices are set by the London LME and those move up and down every day,” he said on Thursday via text message.

The regulation’s Article 3 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.”

Commenting on whether or not the government had discussed the price floor with the AP3I prior to issuing the regulation, Jonathan said the government “see themselves as experts, so hearing the APNI was enough.”

Indonesia, which was the world’s top nickel ore exporter before 2020, aims to turn its nickel reserves into higher-value products, such as car batteries and steel.

 

Norman Harsono

The Jakarta Post

Jakarta   /   Fri, April 24, 2020   /   06:58 pm