The Indonesian government is implementing a ban on the export of some raw mineral ores, particularly nickel and bauxite, to encourage the construction and operation of local smelting and production facilities. To ‘add value’, as the economists call it, which is their ideal development path for mature economies.
As always China holds the key. It imports a quarter of its bauxite from Indonesia for aluminium production, and holds nine-months supply of stockpiles in anticipation of the ban. What will happen then? It will be very instructive to see how this bold move by Indonesia to capture more of the benefits of its ore reserves plays out.
Meanwhile, in the short term, Australian miners are rubbing their hands together at the prospect of replacing the Indonesian supplies with our ore, hopefully at higher prices.
Longer term Australia is in a quandary, with giant aluminium manufacturer Alcoa (US-owned) expected to close one of its two Victorian smelters. BHP has declared the production industry here ‘structurally challenged’, but somehow their smelters in Southern Africa are profitable. And so value-adding goes north, to Indonesia, Africa or China.
Australia slips back to what we do best. Digging the stuff up and shipping it away, without any fancy new taxes or government ‘red tape’. Minerals Resource Rent Tax anyone? Or a Norway-style sovereign wealth fund to better capture the benefits of our depleting common-wealth? Yes, the stuff in the ground actually belongs to all of us! Tell ’em their dreamin.
Indonesia’s government has also introduced laws to restrict foreign mine ownership to 49%. Imagine the outcry and fear campaigns by the mining companies here if our government tried either of these sovereign initiatives.
Go the Lucky Country! How about re-naming it Her Majesty’s Quarry? The place isn’t called Down Under for nothing.