Indonesia’s upcoming ban on mineral exports is drawing a wave of Chinese investors and equipment suppliers as local miners are forced to beef up ore processing capability before a 2014 deadline.
The wave may be one of the few bright spots for aspiring Chinese suppliers, many of whom are venturing out of their home markets for the first time, in bid to offset a construction and investment downturn in their home market.
One small example? Tonghua Jianxin Metalurgy Co. The company based in Jilin province, opened its first office outside of China in Jakarta this month, after sealing only its second overseas contract to design, build and commission a nickel ore smelter in July.
The company will build a smelter capable of processing 50 tons of nickel ore a day for Bukaka Forging Industries, whose specialty products include automotive parts and passenger air bridges at Indonesia’s airports.
The facility will be up and running 14 months from receiving its down payment it’s representative here says.
“The opportunities are enormous here,” says Kidang Omar, an Indonesian native who heads the company’s office here.
“With so much ore volume you can imagine how many many processing factories Indonesia will need
With a quarter of its nickel ore coming from Indonesia, Chinese customers are keen to shore up supplies of the metal as the government curbs export of unprocessed metals.
Chinese imports of Indonesian nickel ore slumped to just under 1.5 million tonnes in August from 4 million tonnes in June after the government announced the export ban.
But in recent months three Chinese firms said they will invest nearly $9 billion in Indonesian smelters.
Oriental Mining and Minerals Resources and Rui Tong Investment will invest $1.5 billion in direct reduced iron plants with a capacity of 6 million tons, Industry minister Mohamad Hidayat has said.
Beijing Shuangzhongli Investment Management will invest $7.1 billion in alumina refining plants with a production capacity of 1.8 million tons.
State owned Aluminum Corporation of China, or Chalco, signed a deal last month with Indonesia's Indonusa Dwitama to develop a refinery for bauxite, the raw material for aluminium.
A subsidiary of the government-backed Earlier this month, Bosai Minerals Group, China's largest bauxite producer, announced a $1 billion investment to build a similar plant in Indonesia.
In May, the Indonesian government banned exports of unprocessed metals such as nickel ore and bauxite.
xporters with plans to build smelters by 2014, won an exemption though they must pay a 20 per cent tax on raw mineral exports.
Omar says his company has the inside track when compared with Western rivals thanks to lower costs, and a portfolio of smelters that are up and running rather than still in research and development.
While the potential market is big here, for now Tonghua’s domestic and overseas rivals from Japan and Canada may chase many of the same projects that have adequate access to electricity.
“We expect stiff competition.”
But other Chinese equipment makers are wondering if they’re too late entering the Indonesian market as a slump in energy and some metals prices erodes appetite to buy trucks, pumps and other machines or even send executives to pricey conferences where attendance is down significantly in recent months.
At the Asian Pacific Mining Conference/ Mining and Engineering Indonesia Exhibition at the Jakarta Convention Centre, organisers were hoping to charge as many as 500 participants $US1200 to listen to two days of panel discussions and schmooze with representatives tending 30 booths -- half of them from Chinese companies.
Instead roughly 120 people turned up for the event, according to conference organisers, who admit to having to handing out free tickets to lift attendance.
“I am surprised how few people are here,” says Mu Chengxun, a sales representative with XEMC, which makes heavy duty trucks including its biggest model: a 300 ton hauler costing $3 million. The truck still undercuts Western rivals by 15 per cent, he says.
“We think there are opportunities here. China already has so much machinery,” says the 25 year old engineer, attending his first trade show outside of China.
The organiser of the Chinese delegation, Sunny Wang, has been shepherding Chinese companies to mining trade shows on behalf of the Beijing Joint Union Exhibition Co. for seven years. Wang says she’s never seen such a poor turn out.
“I’m not sure we’re going to come back,” Wang says.
Still, Chinese investment in Indonesia has risen over the last 12 months recent years triggered in part by the China-ASEAN Free Trade Area in January 2010. By December 2010, more than 1,000 Chinese businesses had invested in the country, with an investment volume of US$2.9 billion, 31.7 percent higher than in the previous year.
Even so, investment flows may be slowing. Foreign direct investment from China totaled $128 million in 2011 down from 173 million the previous year
Still most executives are optimistic.
Analysts also warn Chinese entrants to due their homework on joint venture partners and local business customs.
Kevin Liu, export manager at Hebei Tonga Pump & Valve Group, says his company is drawn by Indonesia’s boom in gold exploration and development. His company’s range of pumps cost half that from Western rivals.
Liu says his company has sold 100 pumps in Indonesia since opening its doors here in 2008.
“This is a good market for us.”
Source: Australian Mining