Indonesia cracks down on illegal nickel exports to China as experts urge price protection for miners
As Indonesia considers introducing fines for nickel firms that are allegedly illegally exporting raw nickel to China despite Jakarta's blanket ban on such trade, experts say officials should study the underlying causes for producers' action instead of focusing on punitive measures.
Indonesia's powerful Corruption Eradication Commission (KPK) said this week that Chinese customs data showed it had received at least 5.3 million tonnes of nickel from Indonesia between January 2020 and June 2022, with the shipments valued at around 14.5 trillion rupiah (US$963 million).
"How did illegal exports of up to millions of tonnes occur in 2.5 years?" Rachmat Gobel, deputy speaker of Indonesia's House of Representatives, asked on Monday.
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"This is a very serious matter," he added. "Indonesia is a country of laws. This also goes against the president's policy on downstreaming."
Nirwala Dwi Heryanto, a spokesman for the finance ministry's customs and excise department, said smugglers of nickel could face a 20-year prison sentence and fines totalling 100 million rupiah.
He said his office was working with its Chinese counterpart to procure a list of exporters and would share this information with the KPK.
The nickel ore could have been transported to various ports in China using falsified documentation that misrepresented the product as processed nickel, such as nickel pig iron or ferronickel, Meidy Katrin Lengkey, the secretary general of the Indonesian Nickel Mining Association, told CNBC Indonesia.
While processed nickel exports are still legal, Jakarta imposed a ban on exporting nickel ore in January 2020 as part of a value-added strategy to generate more revenue from raw materials by requiring miners and producers to build refining facilities onshore.
Since that ban was implemented, Indonesia has earned billions of dollars from stainless steel producers, battery-makers and electric vehicle (EV) manufacturers - mainly from China - that have set up smelters or other nickel processing facilities on its shores.
The country holds 21 million tonnes of proven reserves of the mineral - nearly a quarter of the world's total - according to the US Geological Survey.
But experts say a primary reason for the illegal nickel trade activity might be due to sellers finding domestic prices are not nearly as competitive as international prices.
Some miners might be producing nickel at a higher rate than could be absorbed by local smelters, said Ahmad Zuhdi Dwi Kusuma, a mining industry analyst from Indonesia's state-owned lender Bank Mandiri.
They might also be seeing less profits when trying to sell domestically, and choose instead to sell their surplus product to buyers abroad, he added.
In 2021 and 2022, the benchmark price for nickel ore extracted domestically (HPM) was frequently about half of the prevailing international market price.
According to data analytics company Trading Economics, the international price reached a peak of US$48,226 per tonne in March 2022, while the HPM was at US$23,537 per tonne.
"There are two things that should be done to stop these illegal exports - tighten the monitoring of exports, and make the price of nickel ore sold domestically more competitive," Zuhdi said.
"The government might have to create some sort of price protection mechanism, including floor and ceiling prices, so that both miners and producers equally benefit," said Rizkia Darmawan, an analyst at Mirae Asset capital markets firm in Jakarta.
This incident was unlikely to change the government's stance on the export ban, experts said.
"This is one of the first steps for Indonesia to export value-added products," Rizkia said. "And this is a long-term play."
Zuhdi said any sensible change to the export policy would potentially involve "sky-high tariffs".
Indonesia - which recently also placed a ban on bauxite ore, and is set to follow suit with copper, tin and gold - has stood by its policy even in the face of resistance from the World Trade Organization and the International Monetary Fund (IMF).
In June, the IMF advised Indonesia to phase out its policy on mineral export bans, saying that it posed the risk of destabilising "the multilateral trade system".
Coordinating Economic Minister Airlangga Hartarto responded by saying that any attempt by a foreign country or international organisation to control another nation's export policies was a form of modern-day colonialism.
This article originally appeared on the South China Morning Post (SCMP).
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