Factbox: Indonesia's clampdown on key commodity exports mount supply concerns

The recent reemergence of resource nationalism in Indonesia has sparked price gains in several commodities and raised global supply concerns.

A renewed emphasis on ensuring low domestic raw material prices and developing higher value-added downstream industries is expected to further drive price volatility in sectors such as coal, LNG, metals and agriculture.

The country is a major metals and LNG producer and is also the world's top exporter of thermal coal and palm oil.

In the latest move, Indonesia from Jan. 27 made it mandatory for palm oil exporters to reserve 20% of their shipments for local supply. This followed an announcement of a three-week ban on coal exports and plans to impose higher tax on ferronickel and nickel pig iron in the past few weeks, raising concerns among industry participants at a time of strong prices globally.

Tightening nickel export policies could spell trouble for China's stainless steel mills, with several projects expected to come online in 2022.

Trade flows

Coal

** Indonesia on Dec. 31, 2021, imposed a blanket ban on coal exports amid concerns that several parts of the country could face power outages due to low stocks. Major Indonesian mining companies rushed to collectively commit 2.9 million mt for domestic use on hopes that it would lead to an early revocation of the ban.

** Domestic coal lobbies and key buyers of Indonesian thermal coal, including China, Japan, South Korea, Malaysia and the Philippines, called on Jakarta to ease the restrictions.

** By Jan. 20, 139 companies that met their Domestic Market Obligation requirements were allowed to restart exports.

** Indonesia exported 314.9 million mt of coal in 2021 compared with 331.94 million mt in 2020, according to Minerba One Data Indonesia. In January 2021, the country exported 29.3 million mt.

Nickel

** In January, Indonesian President Joko Widodo reaffirmed a commitment to stop metal ore exports to promote its downstream sectors and exports of higher value semi-finished or finished products, rather than raw materials.

** On Jan. 7, Investment Minister Bahlil Lahadalia said Jakarta is looking at levying a progressive export tax on nickel products with less than 70% nickel content to drive expansion of its domestic processing industry.

** China heavily depends on Indonesia' ferronickel supplies and saw its imports rising 15.8% from a year ago to 3.12 million mt in 2021, accounting for 84.2% of the country's total, according to China's customs data.

LNG

** Indonesia is the world's seventh largest LNG exporter. It is expected to divert more LNG cargoes for domestic use to combat energy shortages in 2022, which could impact export commitments.

** Indonesian Energy Minister Arifin Tasrif confirmed in January that the Energy and Mines Ministry had secured LNG supply previously allocated for exports but would now be diverted to the domestic market.

** Indonesia's upstream oil and gas sector began supplying LNG for domestic use in 2012, with just 14 cargoes for sectors including power, industries and city gas. That number rose to as much as 60.6 LNG cargoes in 2019, but fell to 44.9 LNG cargoes in 2020 due to the pandemic and a resulting decline in economic activity and energy demand. In 2021, energy consumption rebounded with a total 56 LNG cargoes for domestic use, according to upstream regulator SKK Migas.

Palm oil

** Indonesia issued a mandate for palm oil producers Jan. 27 to set aside 20% of their crude palm oil shipments for the domestic market to help reign-in surging domestic edible oil prices.

** Under the new regulation, exporters will have to declare how much CPO, refined, bleached and deodorized palm olein, and used cooking oil they plan to sell to the domestic market to obtain permits for their exports for six months.

** Indonesia's palm oil exports in 2021 were estimated at 33.4 million mt, which accounts for 39% of the world's trade of vegetable oils, the Indonesian Palm Oil Association GAPKI said.

Prices

Coal

** Global coal prices shot up in January after Indonesia banned coal exports temporarily as stockpiles at power plants run by the state-owned energy company PT Perusahaan Listrik Negara fell to critically low levels.

** Indonesia's 4,200 kcal/kg GAR was assessed at $69.95/mt FOB Jan. 26, up from $63.45/mt FOB on Dec. 31, 2021, according to S&P Global Platts data.

Nickel

** Policy announcement on nickel pushed prices of the metal to their highest level in more than a decade -- hitting $24,000/mt on Jan. 20, according to LME data.

** Nickel sulfate prices on a DDP China basis have risen 13% to Yuan 38,500/mt between Jan. 1 and Jan. 26, according to Platts data.

Palm oil

** Third-month CPO futures on Malaysia's Bursa Malaysia Derivatives exchange, which underpin international palm oil prices, rose 3% to MR5,500/mt ($1,310.30) on Jan. 27, closing at an all-time high of MR5,441/mt.

** The Indonesian Palm Oil Association said in January that the price of CPO is predicted to stay high in 2022 at $1,000/mt.

** Indonesian palm oil export prices rose 6.6% from Dec. 31, reaching $1,375/mt Jan. 26, Platts data showed.

Infrastructure

Coal

** Following the lifting of the ban Jan. 20, Indonesian thermal coal sellers were busy clearing order backlogs accumulated from the three-week blanket ban on exports, and delays and disruptions are expected to continue in the near future.

** Indonesia established DMO rules in 2009 that mandate coal producers to supply 25% of their annual production to domestic markets.

** Typically, coal DMOs were given as annual targets. However, Indonesia this year said DMO contributions would be checked monthly, effectively reducing wiggle room for producers who would wait for international prices to fall before sending coal for domestic use.

Nickel

** Indonesia holds the world's largest nickel reserves.

** Nickel is mainly used for production of stainless steel, but it is also used in battery manufacturing, mostly as a precursor material in the form of nickel sulfate.

** Indonesia is also a major producer of several other key metals. The country has around 25% of the global share of tin, 17% of nickel ore and 6% of bauxite, with the three being the most impacted by export bans, Australian multinational bank ANZ said Jan. 20.

** Indonesia commissioned its first plant to process nickel for use in batteries in May 2021, according to the Center for Strategic and International Studies. The country could launch at least seven more such projects.

LNG

** Indonesia used to be one of the world's top LNG producers, but it has been gradually overtaken by new suppliers. Its LNG exports have fallen because of slowing exploration and production activity and growing domestic demand to supply energy, to what is now the world's fourth most populous country.

** Its main LNG export terminals are Tangguh LNG and Bontang LNG. More recently, it has been building LNG receiving terminals as cargoes get increasingly diverted to local markets.

** Indonesia has the third largest proved natural gas reserves in the Asia-Pacific region after China and Australia, according to the US Department of Energy, but consecutive resource nationalization policies have resulted in international oil companies withdrawing from the biggest gas projects.

Palm oil

** Indonesia is the world's biggest producer and exporter of palm oil, providing about half of the world's palm oil supply and 39% of the world's total vegetable oil exports, according to the US Department of Agriculture and GAPKI.

** Indonesia's palm oil plantations are estimated to stretch across 13 million hectares in 2020, with planted area almost doubling in a decade, according to GAPKI.