By Ulf Bergman
Indonesia is looking at moving up the international value chain, with the island nation’s President, Joko Widodo, stating that the country will “hit the brakes” on exports of raw commodities. The country is the world’s leading exporter of thermal coal, palm oil and tin. In addition, it is a significant exporter of, among others, nickel and copper. The initiative is aimed at creating jobs in the domestic economy and attracting overseas investments.
Indonesia has already banned the exports of several unrefined ores, including nickel, tin and copper, to promote the development of its downstream industries. Among other things, the country aims to expand its aluminium industry and produce batteries for electric vehicles. The Indonesian government is also presently conducting a study on the downstream of other commodities with a long-term goal of not exporting raw materials. The country’s leader expressed his disapproval of merely exporting unprocessed materials, as it does not add value and brings only limited commercial activities. Under current policies, Indonesia will cease exporting bauxite, a vital ingredient for the aluminium industry, in 2023. However, It is not only dry bulk commodities that will be affected, unprocessed palm oil being a candidate for an export embargo with domestic production of cosmetics, margarine, and biodiesel preferred. Additional commodities may also be affected by the new guidelines, with the President suggesting that all raw materials could be subject to bans in the future.
During last year Indonesia exported 445 million tonnes of dry bulk commodities, well below the 538 million tonnes seen in 2019 as the pandemic affected both demand and output. This year volumes are staging a come-back, while not at par with the pre-pandemic peak of 528 million tonnes, the year’s exports look set to top 500 million tonnes. Assuming exports remain on track, the country will record its second-highest annual export volumes, according to data from Oceanbolt. Coal is by a considerable margin the largest constituent of the record number, with its share hovering just below ninety per cent. While accounting for most of the Indonesian exports, the fossil fuel has shed some of its market share in the last five years from a peak of 95 per cent.
The ban on nickel ore exports that the Indonesian authorities introduced two years ago saw the emergence of the country’s exports nipped in the bud. A late entrant to the global nickel trade, Indonesian exports rose rapidly during the last decade to a peak of 33 million tonnes in 2019, with most of it going to China. As the ban took effect, volumes slumped to just over two million tonnes last year. Despite the ban, the exports have recovered somewhat this year and could on course for 7.5 million tonnes this year. During the two years preceding the pandemic, Indonesian nickel seaborne exports accounted for thirty and forty per cent, respectively, but the market share has shrunk considerably following that. Beyond Indonesia, global seaborne volumes of nickel have been relatively stable, around fifty million tonnes per year, with the Philippines being the source for most of it. Indonesia’s retreat from the trade has contributed to the nickel supply remaining tight and prices currently trading at a ten-year high.
As Indonesian nickel exports have faced mixed fortunes, the country’s bauxite shipments have been increasing their share of the global trade. In the five years from 2015, volumes increased more than a hundred times to 17.6 million tonnes in 2020. At the same time, the market share grew to eleven per cent from next to nothing. Contrary to the nickel trade, there are several large producers, with Guinea and Australia taking the top spots, and Indonesian bauxite is yet to claim the same prominence as its nickel before the pandemic. The growth in the global seaborne volumes of bauxite is also not just a function of increasing Indonesian exports. However, like for nickel, China is the dominant buyer globally, and for the Indonesian bauxite, the dominance is even more extensive, with nearly a hundred per cent heading for Chinese ports.
Any new export bans are unlikely to affect Indonesia’s coal exports. The country’s USD 1.5 billion thermal coal deal with China from November last year looks set to guarantee that the Indonesian thermal coal will continue to flow to the Chinese market. Additionally, there is precious little potential for value-added when it comes to coal and, hence, not much to be gained from keeping the commodity. An export ban on both nickel and bauxite exports could, on the other hand, shift some of the global trade flows. A greater degree of resource processing in Indonesia could see the country exporting more refined products and goods. However, the lack of dominance for Indonesia in these trades could make such a change problematic and dependent on its primary customer’s reaction. China’s dual-circulation policy initiative could see the country seeking alternative sources for its domestic aluminium and nickel industry to maintain its national and industrial independence. In such a scenario, the current Chinese commercial interests in West Africa could see more bauxite sourced from the more distant Guinea, as Australian supplies are likely to remain off-limits. Nevertheless, leaving other nations to process the raw material could also be welcome in Beijing, allowing the country the reduce pollution and improve its environmental credentials.