Meddling With Metals
Other than as to how coal might limit power generation and therefore cause mandated blackouts as it has in China, we don’t really track coal resources, but we do for some of the metals that are commonly used in consumer electronics. What brought coal to our attention, other than the China situation, was the fact that the Indonesian government has issued a ban on coal exports, which began on January 1 and continues through the end of the month. Indonesia was the 2nd largest coal exporter in 2020 behind Australia, and that year exported 17.6% of total coal exports. The export ban was instituted when mines failed to meet a government requirement that 25% of their annual production must go to the state-owned electric company PT PLN at a maximum price of $70/ton. By halting coal exports the government is trying to ensure that domestic power generation will continue uninterrupted.
In itself, the Indonesian coal export ban is only tangentially relevant to the CE space, however this week the President of Indonesia indicated that it is reviewing export restrictions on other mineral resources, with indications that copper and bauxite (85% of bauxite is converted to aluminum) among the one being considered. While these metals are well traded on a number of exchanges, lessening availability issues, copper is up 6.9% over the last 30 days and 26.5% over the last year, while aluminum is up 13.0% over the last 30 days and up 48.2% over the last year. Indonesia was the world’s 6th largest copper exporter in 2020 with a 4.2% share and the 5th largest bauxite exporter last year, so such potential bans would only serve to tighten the market further and add to the rising cost of CE products.
While the Indonesian coal mandate seems plausible in order to maintain a consistent supply of power across the country, limiting the export of metals like copper and aluminum seems considerably less so and more of a political issue, but we already hear that some of the countries that are major producers of CE products are looking to diversify their copper and aluminum import sources to avoid being caught in any new restrictions The Indonesian ban on coal exports is in place but others are still in the realm of political rhetoric and speculation, so we expect it is doing little other than upsetting the Indonesian mining industry and pushing some importers away from Indonesian suppliers. Maybe the end game in the government’s mind is to ratchet up prices for the country’s natural resources, but price elasticity is funny in how it tends to even things out in the long run, while politicians tend to be relatively short-term.
In itself, the Indonesian coal export ban is only tangentially relevant to the CE space, however this week the President of Indonesia indicated that it is reviewing export restrictions on other mineral resources, with indications that copper and bauxite (85% of bauxite is converted to aluminum) among the one being considered. While these metals are well traded on a number of exchanges, lessening availability issues, copper is up 6.9% over the last 30 days and 26.5% over the last year, while aluminum is up 13.0% over the last 30 days and up 48.2% over the last year. Indonesia was the world’s 6th largest copper exporter in 2020 with a 4.2% share and the 5th largest bauxite exporter last year, so such potential bans would only serve to tighten the market further and add to the rising cost of CE products.
While the Indonesian coal mandate seems plausible in order to maintain a consistent supply of power across the country, limiting the export of metals like copper and aluminum seems considerably less so and more of a political issue, but we already hear that some of the countries that are major producers of CE products are looking to diversify their copper and aluminum import sources to avoid being caught in any new restrictions The Indonesian ban on coal exports is in place but others are still in the realm of political rhetoric and speculation, so we expect it is doing little other than upsetting the Indonesian mining industry and pushing some importers away from Indonesian suppliers. Maybe the end game in the government’s mind is to ratchet up prices for the country’s natural resources, but price elasticity is funny in how it tends to even things out in the long run, while politicians tend to be relatively short-term.
Rubber Band Snap Back in Slo-Mo - Source: "Physics" 1/4/2019
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