Experts Call for Understanding and Addressing Root Causes of Illegal Nickel Exports from Indonesia to China
As Indonesia contemplates imposing fines on nickel firms involved in alleged illegal exports of raw nickel to China, experts suggest that officials should focus on studying the underlying reasons behind producers' actions rather than resorting solely to punitive measures.
The Corruption Eradication Commission (KPK) of Indonesia recently revealed that Chinese customs data indicated the receipt of at least 5.3 million tonnes of nickel from Indonesia between January 2020 and June 2022, with a total value of around 14.5 trillion rupiah (US$963 million). This revelation has prompted questions about how such significant illegal exports could occur over a span of 2.5 years.
Nirwala Dwi Heryanto, a spokesman for Indonesia's finance ministry's customs and excise department, stated that smugglers of nickel could face a 20-year prison sentence and fines amounting to 100 million rupiah. The department is working with its Chinese counterpart to obtain a list of exporters involved in the illegal trade and plans to share this information with the KPK.
According to Meidy Katrin Lengkey, the secretary general of the Indonesian Nickel Mining Association, the nickel ore could have been transported to various Chinese ports using falsified documentation that misrepresented the product as processed nickel, such as nickel pig iron or ferronickel. While the export of processed nickel remains legal, Indonesia implemented a ban on exporting nickel ore in January 2020 as part of a strategy to add value to raw materials by requiring miners and producers to establish refining facilities onshore.
Since the ban's implementation, Indonesia has earned billions of dollars from stainless steel producers, battery-makers, and electric vehicle (EV) manufacturers, primarily from China, which have established smelters and other nickel processing facilities in the country. Indonesia holds approximately 21 million tonnes of proven nickel reserves, nearly a quarter of the world's total, according to the US Geological Survey.
Experts suggest that the primary reason behind the illegal nickel trade may be the significant disparity between domestic and international prices. Some miners may be producing nickel at a rate that exceeds the capacity of local smelters, resulting in less competitive domestic prices. Consequently, they opt to sell their surplus product to international buyers instead. In 2021 and 2022, the benchmark price for domestically extracted nickel ore was often around half of the prevailing international market price.
To address the issue of illegal exports, experts recommend tightening export monitoring and making domestic prices for nickel ore more competitive. This could involve implementing price protection mechanisms, such as floor and ceiling prices, to benefit both miners and producers. While this incident is unlikely to change Indonesia's stance on the export ban, experts emphasize the need to understand and address the root causes of the illegal trade.
Indonesia has remained steadfast in its mineral export ban policy, which includes bauxite ore and is set to expand to include copper, tin, and gold. The policy has faced resistance from organizations like the World Trade Organization and the International Monetary Fund (IMF). However, the Indonesian government views any attempt to control its export policies as a form of modern-day colonialism, according to Coordinating Economic Minister Airlangga Hartarto.
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