Indonesia needs to process mining exports for added value Achmad Syafriel,
Research Analyst
Indonesia needs to transform itself from a raw commodities exporter into a
value-added commodities exporter.
Two weeks ago we witnessed the debut in theaters of a long-awaited box office
movie based on a childhood-era action comic about good and evil robots. It
may have been a coincidence, but several weeks earlier a number of local TV
channels had carried stories about a robot-building competition involving
Indonesian students, with the robots being designed to perform specific tasks,
such as extinguishing fires, etc. The latter may be science and the former
fiction. But regardless of that, all robots have something in common: they are
made from metals, e.g., iron, nickel or aluminum. Although Indonesia doesn't
produce robots, it has plenty of metals to start with. Sitting astride a highly
active volcanic region, Indonesia has vast reserves of minerals. It is not
surprising that Indonesia in the past was known as the sapphire necklace of the
equator, referring to the vast natural resources spread across the archipelago.
Apart from agricultural products, such as rice,
crude palm oil (CPO), rubber, cocoa, coffee and tea, hard commodities, such as
oil, gas and coal -- as well as much-in-demand metals such as tin, gold,
copper, nickel, iron sand and bauxite -- are now key export commodities. But
getting these resources out of the ground is an art in its own right. Mining
requires huge investment and is fraught with risks. While geological data may
show potential reserves in certain areas, mining companies still need to
perform many expensive tests to gauge the technical and economic feasibility of
exploration and exploitation, the costs of which have to be borne by the mining
firms. Due to the huge size of the investments required, foreign firms have
been encouraged to invest in Indonesia's mining sector, in tandem with local
mining companies. These companies have signed many agreements with the
government to engage in exploration and production under various profit-sharing
schemes and over differing time periods. Mining products
are now key exports to countries such as Japan, China, and the U.S., and thus
contribute substantially to government revenues. Unfortunately, however, most
of Indonesia's mining exports are still exported in raw form. Many foreign
companies that invest in the Indonesian mining sector only dig out the ores and
export them in unprocessed form. This represents an opportunity loss to
Indonesia as the prices of raw and processed commodities can differ
substantially. Let us take nickel and bauxite as an illustration. Saprolite
and limonite are nickel ores. Saprolite is classified as high-grade nickel ore
while limonite is low-grade nickel ore. They were sold at prices of US$55/wmt
(wet metric tons) and $31/wmt, respectively, on average last year. On the
other hand, ferronickel, which is a processed product from nickel smelters that
use 80 wmt of saprolite for every 1 ton of ferronickel, sold at up to $10/lbs,
or more than $22,000/ton. This means that the price of 1 ton
of processed-nickel is equivalent to 400 times that of nickel ore! Another
example is bauxite. Bauxite is sold for approximately $11-12/wmt. However,
after being processed into alumina (smelter-grade alumina), it can fetch a
price of $360/ton. This means that the price of alumina is up to 30 times that
of bauxite. Therefore, Indonesia could earn much higher revenues if raw
commodities were processed into higher value-added ones before being exported.
In this regard, Indonesia needs to intensify the transfer of knowledge in the
mining sector. However, technological transfer has always been easier said
than done. For developed countries, technology is their key competitive
advantage. Domestic mining companies realize that technological transfer
requirements can be obstacles to the negotiation of joint venture projects with
prospective foreign partners. However, now is the time for Indonesia to make
the most of the rising global demand for energy. With strong
economic growth in China and India, energy is in high demand. Indonesia could
use this situation to leverage its bargaining power. In the new mining bill,
which is still being deliberated in the House of Representatives, the
government plans to ultimately prohibit the export of unprocessed ores.
Indonesia should go further and make technological transfer a requirement for
new mining sector contracts. For Indonesia to transform itself into an
exporter of hi-tech robots at this point seems far-fetched. In the meantime,
why not start by making the most of our raw-material exports?
---------------------------------
Kunjungi halaman depan Yahoo! Indonesia yang baru!
