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Indonesia will reopen nickel ore exports and relax deadlines on companies building smelters in an effort to boost its flailing mining sector.

Mining minister Luhut Pandjaitan expects to implement the changes within weeks, which would allow mining companies an extra five years to construct smelters to process mineral ores domestically.

Previously, the export of raw copper, zinc, lead, manganese and iron concentrates were to be banned from 2017. Companies were to build facilities for processing the ores in Indonesia, after which they could be exported as processed metals.

However, with Indonesia’s economy already suffering due to the downturn in China, which buys much of its commodity exports, the government is likely to take measures it feels will prevent further damage.

This will be music to the ears of producers who have yet to invest in smelters, but difficult to stomach for those that have. Caroline Bain, commodities analyst at Capital Economics, says she is surprised by the extension, given the policy’s popularity among the electorate and the fact that new smelters were being built.

She tells GTR: “One could argue that if export restrictions are eased, companies may not see the need to build smelters in Indonesia. On balance though, I think smelters will be built there.

“The Chinese government is keen to restrict highly-polluting nickel pig iron production at home and if it is Chinese companies building the smelters, it can still be a net positive for China – a relocation of its polluting industries but still having ownership etc.”

The export of nickel ore was banned in Indonesia in 2014, since which the Philippines has usurped Indonesia as the world’s top nickel ore exporter. The government in Jakarta is looking to change the rules around this “because no one can process it domestically”, Pandjaitan says.

Bain adds: “The other factor to remember is that global stocks of refined nickel are still very high. Admittedly they have fallen recently but, in absolute terms, there is still no immediate shortage of refined nickel.”

The general consensus is that this will have negative pressure, with one trader telling GTR that “prices are going to collapse”.

With the Filipino President Rodrigo Duterte ratcheting up pressure on his country’s mining sector to ensure more revenue stays there, the Indonesian government has chosen to seize the moment.

“Any loosening of Indonesian restrictions on nickel ore exports would be negative for the price I think, at least in the short term. Much of the recent rally in the price has been as a result of the mine closures in the Philippines and concerns about future ore supply. Indonesian ore is higher quality and more suited to China’s smelters so refined producers there would be pleased,” Bain says.