Indonesia's aims to boost processing of metals

Indonesia hopes to double its smelting capacity for key metals such as copper and steel over the next five years driven by planned new rules on domestic processing, a top industry ministry official said on Wednesday.

Indonesia is rich in copper, gold, tin and nickel but most are exported in their raw ore form, which has a lower value compared to processed metals. Only tin is fully processed at home and exported in metal form.

A new mining law, which has been in the works for several years and is now being held up by a parliamentary committee, has a clause that requires miners to process more mining products at home in order for Indonesia to earn more from the sector.

"There is a growing interest to invest in the metal smelting and refining industry," Anshari Bukhari, director general of metals, machinery, textile and miscellaneous industries at the industry ministry, said in an interview.

"The new mining law will allow for additional value and not just exporting land and water," he added.

Production capacity for steel-making industries is expected to reach ten million tonnes in the next four to five years, from a current capacity of five-six million tonnes a year, Bukhari said.

For copper smelting and refining, production capacity for copper-cathode is expected to reach 450,000t-500,000t per year over the period, from 230,000t now, he said.

New projects in the steel-making sector include PT Meratus Jaya Iron & Steel - a joint venture between state miner PT Aneka Tambang and PT Krakatau Steel - to build a steel factory with an annual capacity of 315,000t of sponge iron.

PT Essar Indonesia, a subsidiary of India's Essar Global Limited, also planned a $1.6bn investment to build steel pellet factory with an annual capacity of four million tonnes and expected to start production in 2011, according to ministry data.

Capacity to produce aluminium ingot is expected to triple from 225,000t per year if India's state-run National Aluminium Co. Ltd went ahead with a plan to build an aluminium smelter in South Sumatra with a capacity of 500,000t a year, Bukhari said.

The government had also provided tax incentives in a bid to attract investors to the smelting business, Bukhari said, including a new regulation last year cutting income taxes for iron and steel factories, copper wire and aluminium smelting.

Companies are often reluctant to invest because of a struggle to ensure supplies of raw materials, since miners in Indonesia often exports mineral products in raw form under long-term contracts abroad, forcing local smelters and refiners to import raw materials or semi-finished products.

In addition, foreign companies often complain about the investment environment in Indonesia, including a weak legal system, endemic corruption, creaky infrastructure and a lack of respect for contracts.

"Investment in the sector is huge, so it needs huge security of supply," Bukhari said, conceding that it would be a hard to get more investment in the sector.

"The smelting and refining business will take a long time and it's risky," said the official.

By Fitri Wulandari and Yayat Supriatna, Reuters