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BMI View: Indonesia's mineral production growth will remain slow on the back
of heightened environmental protection, slowdown in the Chinese economy and
continued mineral price weakness. The impending ban moderation on the export of
mineral ores will provide some respite to production, especially in the case of
Latest Developments & Structural Trends
-We expect the Indonesian government will push ahead with its February 2016
proposal to revise the country's mineral ore export ban by September 2016 as
expected investment in the downstream sector has not materialised. The bauxite
sector will benefit most from the relaxation of the ban, as the sector
registered poor smelter construction and the greatest loss in revenues as a
result of the ban. We expect our current production forecasts to face upside
risks due to the impending ban moderation.
-We forecast bauxite production growth in Indonesia to register an annual
average of 148.2% during 2016-2020, mainly because of acceleration in production
in 2016 of 600% due to China Hongqiao Group Limited's smelter facility coming
online. Hongqiao will initially produce one million tonnes per annum of
aluminium, doubling capacity by 2017. One tonne of aluminium requires
approximately five tonnes of bauxite to produce. Contrary to numerous smelter
project proposals in 2014 and our past expectations on high smelter investment
from China, smelter investment for bauxite has been stagnant as a result of low
prices and lack of funding. In March 2016 Hongqiao started trial runs in its new
alumina smelter in Indonesia, adding to the only other smelter in the country,
PT Indonesia Chemical Alumina, a subsidiary of diversified local miner PT Antam.
-We expect Indonesia's coal production to fall by 15.0% to 314 million tonnes in
2016, followed by subdued growth henceforth to 2020, registering an average
annual growth of 3.0% per annum during 2016-2020. Over the long term, despite
the one time fall in domestic production due to the crackdown on illegal mining
in 2015, we believe output will be supported by strong demand from a domestic
pipeline of coal-fired power plants. Although emerging economies like the
Philippines will continue to rely on Indonesian coal for power generation, a
spate of piracy incidents in the last few months attacking Indonesian ships will
undermine shipments in the upcoming quarters. Additionally, India's ramping up
of domestic coal production will eventually reduce the country's reliance on
Indonesian coal imports in the coming years.