| KUALA LUMPUR
KUALA LUMPUR Feb 14 Already under fire for
widespread environmental damage, Malaysia's once lucrative
bauxite mining industry is facing a likely death knell from
neighbouring Indonesia's move to allow a resumption of exports.
This time last year, Malaysia was the world's biggest
supplier of the aluminium-making raw material to top buyer
China, but its exports tumbled after government action aimed at
reining in the little regulated industry.
The latest move could spell the end for a sector that only
sprang to life in late 2014 after Indonesia banned ore exports,
and illustrates the risks facing miners across Southeast Asia
from increasingly uncertain government policy.
Copper giant Freeport-McMoRan Inc warned last week
it could slash output from Indonesia amid a long-running dispute
with the government, while the Philippines has ordered the
closure of more than half the country's mines on environmental
"Policy risk is huge in mining right now," said Daniel
Morgan, mining analyst at UBS in Sydney. "In supplier policy,
you've got changes to Indonesia's mining policy, the Philippines
A host of mining operations sprang up along Malaysia's
bauxite-rich east coast to fill a supply gap after Indonesia in
2014 barred exports of mineral ores in a bid to push miners to
In 2015, Malaysia shipped more than 20 million tonnes to
China, well ahead of nearest rival Australia and up nearly 700
percent on the previous year. In 2013, it shipped just 162,000
But the dramatic rise came at a cost as largely unregulated
miners failed to secure stockpiles of bauxite. The run-off from
monsoon rains turned rivers and coastal seas red, contaminating
water sources and leading to a public outcry.
The government imposed a mining moratorium in early 2016,
and shipments to China from existing stockpiles fell to 165,587
tonnes in December, with little indication the government is set
to change its mind.
Malaysia's natural resources and environment ministry said
any decision to lift the moratorium would be based on how well
miners follow regulations to preserve the environment rather
than economic gain.
Recent rains in Kuantan have caused some bauxite runoffs
from existing stockpiles, minister Wan Junaidi Tuanku Jaafar
"The heavy rains proved that the mitigation was not
adequate. Now by having this before me, I am not yet prepared to
allow them to start the operations," he said, declining further
comment on the topic.
Indonesia introduced new rules last month that will allow
exports of nickel ore and bauxite and concentrates of other
minerals in a sweeping policy shift, but did not specify when it
would resume exports.
The announcement could be the final nail in the coffin for
Malaysia's industry, as its miners expect China to switch to
Indonesia's better quality and cheaper ore, due to lower
"Indonesian bauxite miners kept a lot of stockpiles ... They
can sell cheap," said a miner from local company based in
Kuantan, a key bauxite mining area in the state of Pahang.
"If the volume coming out of Indonesia is over 10 million
tonnes, Malaysia has to say goodbye."
Unlike recent ructions in nickel supply from Indonesia and
the Philippines that pushed up prices, Malaysia's near exit from
bauxite has had little impact on the supply chain as new
suppliers emerged, particularly in Guinea in West Africa.
"Some of these commodities are pretty plentiful, like
bauxite for instance," noted UBS's Morgan. "When we talk to
aluminium companies in China, we haven't detected that they're
worried about a bauxite shortage."
The greater effect may be on Malaysia's export-based economy
where bauxite surged to become a key mineral shipped to China,
its largest trading partner. At a bauxite price of $50 a tonne,
Malaysia's 2015 exports were worth over $1 billion.
The scandal-tainted Prime Minister Najib Razak's government
is pushing to boost revenue as he prepares for a tough election
that has to be called by end-2018.
"There will be less export income," said Ooi Kee Beng,
deputy director of Singapore based research centre ISEAS-Yusof
Ishak Institute. "The loss of jobs at a time when common people
are facing economic difficulties will have political impact that
is unwelcomed by the government."
(Additional reporting by Joseph Sipalan and Melanie Burton in
Melbourne; Editing by Praveen Menon and Richard Pullin)