Friday, January 15, 2010

Indonesia's miners decreed to reduce exports

Indonesia, a leading supplier of tin, coal, nickle and copper may force its miners to cut production if they fail to supply the domestic market under a Ministerial decree that took effect 1 January. The government will decide by June at the latest the amount companies must aside for their Domestic Market Obligation (DMO) next year, according to the decree a copy of which was obtained by Bloomberg News. Companies that fail to comply with the export curbs may face an output cut of up to 50% in the following year.

Indonesia is seeking to curb exports of mineral resources as a faster growing economy boosts demand for fuel and raw materials. Bank Indonesia forecasts Southeast Asia’s biggest economy to grow 5.5% this year compared with 4.3% last year.

For instance, domestic coal demand is expected to reach 75 Mt this year, approximately 30% of the estimated total production of 250 Mt. In 2009, coal production was 254 Mt while domestic demand was 56 Mt.

Witoro Soelarno, the secretary to the directorate general for minerals, coal and geothermal, told The Jakarta Post that existing coal and mining contracts stated that "producers must put priority on the domestic market" but the details of the Domestic Market Obligation obligation were not explained and this led to different interpretations in implementation. "The decree is expected to give legal certainty for producers and consumers,” he said.

Industry associations argue that the DMO will not cause problems so long as the price is not capped. “If the domestic buyers use the market prices, the producers will happily sell their output to the domestic market as the location is close and this will cut the delivery time,” said Bob Kamandanu of the Indonesian Coal Mining Association (APBI).

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