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Iron ore processing (iron making) industry in Indonesia.

Backgrounds

Iron ore processing (iron making) is an upstream sector of steel industry. It is the base and an important part of steel industry. Indonesia has not made much progress in developing iron ore processing industry. The country is known to have large reserves of iron ore. Some of the reserves have been exploited but the type of iron ore produced in the country has low ferrous (Fe) content that could not yet be processed domestically. The country has no smelter to process iron ore into midstream steel products like pellet.

Indonesia exports its iron ore mainly to China, Japan, India and South Korea and re-imports the material in the form of pellet to produce sponge iron. Processed iron ore are needed to feed midstream steel industry including slab and billet factories. The country's steel industry still entirely depends on imports for processed iron ore.

Major steel producing countries notably China is eyeing iron ore supply from Indonesia. In fact iron ore producers in the country have exported their production mainly to China to be processed into steel. China exports finished products of steel including to Indonesia. China, therefore, enjoys potential gains in added value and jobs from the import of the raw material from Indonesia.

According to data from the energy and mineral resources ministry Indonesia has potential resources of iron ore estimated at 5.075 billion tons, with proven reserves of 115 million tons. Production of iron ore was recorded at 3.8 million tons in 2010. The reserves are found in Aceh, West Sumatra, Java, East Nusa Tenggara and Kalimantan.

The size of the reserves has attracted foreign investors. In the past two years a number of foreign investors have teamed up with local partners to build iron ore processing factories integrated with steel factories. Some of the foreign investors including from China, Australia, India and South Korea have secured operation license.

Implementation of the projects would reduce the country's dependence on imports for steel basic materials like pig iron, sponge iron, slab, and billet. The country has been heavily dependent on imports for the basic materials. The country's largest steel maker PT Krakatau Steel imports large volume of the materials from Brazil.

Characteristic of Products

Iron ore is produced mainly after costly explorations, but sometimes iron ore surfaces from underground in a volcanic and hydrothermal process under which volcanic materials are split into elements like pegmatite, magnetic, haematite, limotite. Siderite, metamorphosis, and gases including phosphor, sulfur and carbon.

In general, there are three types of iron ore including:

1. Oxide:

a) Magnetic Ore, with composition of Magnetic mineral (Fe3O4) in brown color with high iron ore content of more than 56%

b) Haematite Ore, with composition of Haematite mineral (Fe2O3) in reddish yellow color having a iron ore content of 40% to 65 %

2. Hydrate Ore containing limotite (2Fe2O3.3H2O) and Geothite(Fe2O3.3H2O) with iron ore content of 20% to 55 %

3. Carbonates, containing Siderite mineral (FeCO3 with iron ore content of 30 %.

The locations of explorations also determine the composition of elements in the iron ore. For example, ferrous oxide, which is composed of magnetic ore, is found in Russia, Sweden and America. Haematite ore is found in Canada, Spain, Britain and Russia. Hydrate ore is found in Poland, America, Germany and France. Carbonate ore is found in Germany and Austria.

Ore produced during explorations is composed of a number of elements. Refining and de-formulation of elements or mixture and compound of various elements in certain grade is needed to turn out a certain quality of material. The process of compounding elements will turn out a technical material with characteristics and natures different from their original natures both chemically and mechanically.

The various characteristics make metal an important technical material being easily shaped and their tension being fixable and availability being relatively sufficient.

Iron ore is processed further in a blast furnace to turn out pig iron which comes out in the form of cast iron to be smoothed into wrought iron, which is to be processed further into steel and cast iron with specific characteristics

Smelting of iron ore

In the process of smelting iron ore heating is needed to break the compound of metallic atoms that the process of melting the metal made through chemical reactions between elements with high iron ore content The iron ore needs to be broken into small particles with phosphor content of not more than 2.5%, and sulfur content of 0.2% and the blast furnace has to be used continually and regular maintenance.

Iron ore is washed and the content is increased by separating the iron ore from non iron minerals, sulfur and humidity and carbon dioxide by heating. Iron ore is broken to form clumps, and the dust that comes out in the process would mix with coal dust helping the process of smelting and form clumps of tar.

Iron ore in the form of mineral is generally like haematite (Fe2O3), magnetite (Fe3O), limonite FeO (OH).nH2O). Iron ore is processed further into iron metal (Fe).

Iron Metal (Fe)

Iron metal (Fe) is used widely mainly to produce ferrous alloy or steel and cast iron. Steel and cast iron are produced from iron ore in the form of mineral like hematite (Fe2O3), magnetite (Fe3O4), limonite FeO (OH).nH2O).

With the principle of reduction that is by putting in a reaction a reduction agent such as carbon from coal or wood charcoal with solid or liquid iron ore under a high temperature will turn out iron metal (Fe).

Most of iron ore production is processed to produce steel and cast iron which are the most valuable products. Only a few is processed to produce pure iron which is used only in chemical and pharmaceutical industries and in research.

[ILLUSTRATION OMITTED]

Iron ore reserves

Indonesia is rich in mineral resources including iron ore, the raw material for steel. Iron ore reserves are found in various areas but are relatively small each. Most of the reserves have iron content with small or less than 50% content of Fe that processing is needed to be used as feedstock in steel industry.

The reserves are found in various areas in Aceh, West Sumatra (Solok), South Sumatra, West Java, Central Java, and Kalimantan. Based on data from the energy and mineral resources ministry, the country has total potential resources of iron ore estimated at 5.075 billion tons with proven reserve of 115.494 million tons.

So far the country has exported its iron ore production without first being processed further into midstream or downstream materials. The country should have earned around US$600 per ton in added value if iron ore is processed locally. However, the country has no facility to process iron ore, although the country already has a number of producers of iron ore. Among the producers of iron ore are PT. Pinang Sejati Utama (PSU), which has a mining concession of 200 hectares in South Aceh, PT. Juya Aceh Mining in Southwest Aceh with a mining concession of 400 hectares, PT. Lhoong Setia Mining in Aceh Besar with a mining concession of 500 hectares and PT. Waja Niaga in Southwest Aceh with a mining concession of 50 hectares.

In South Kalimantan, there is PT. Sebuku Iron Lateritic Ore (SILO) in Pulau Sebuku, Kotabaru.

PT Indo Mining Modern Sejahtera (IMMS) is a consortium of Hani Group and Siberian Mining Group from Hong Kong and local partner operating iron sand mine with a mining concession of 8,000 hectares in Lumajang, East Java. PT IMMS has a production capacity of 20,000 tons of iron sand per day or 600,000 tons per year with an investment of Rp2 trillion. This company has a total of 50 units of machine and each machine could produce up to 3,500 tons per day. The mining facilities are equipped with refining installation and a special port. Its production is all for export.

Production and exports

The country exports its entire production of iron ore as it has no facility to process iron ore to produce pig iron or sponge iron. Exports of iron ore have increased significantly from year to year. Based on data from the mineral and coal directorate general, exports of iron ore surged 407% to 32.5 million tons in 2011 from 6.4 million tons in the previous year.

In 2011, there were five iron ore mining companies operating in Aceh including PT. Pinang Sejati Utama (PSU), PT. Juya Aceh Mining, PT. Lhoong Setia Mining, PT. Waja Niaga and PT. Harita Persada Jaya Tambang. Iron ore exports by the five companies totaled 425,109 tons worth US$ 17. 2 million in the first nine months of 2011.

PT. Pinang Sejati Utama alone exported 256,795 tons of iron ore in 2011 valued at US$ 10.6 million , up from 228,581 tons valued at US$ 9.7 million in 2010, PT. Juya Aceh Mining exported 20,675 tons valued at US$ 578,000; PT. Lhoong Setia Mining (PT. LSM) exported 45,601 tons valued at US$ 1.1 million , down from 328,265 tons valued at US$ 8.1 million in 2010; PT. Waja Niaga exported 51,340 tons valued at US$ 1.9 million; and. PT. Harita Persada Jaya Tambang exported 50,696 tons valued at US$ 3 million.

Iron ore from Aceh was exported to China totaling 402,388 tons valued at US$ 16.7 million and to Malaysia totaling 22,721 tons valued at US$ 568,000.

Iron ore exports from Kotabaru, South Kalimantan to China totaled 3.99 million tons valued at US$59.6 million. Exports from Kotabaru were made by PT. Sebuku Iron Lateritic Ore (SILO) in Pulau Sebuku, Kotabaru.

Iron ore reserves not enough for domestic consumption

According to the ministry of energy and mineral resources, the country iron ore reserves are not enough to meet the domestic requirement. The country's steel industry needs around 13 million tons of iron ore a year to produce 6 million tons of steel products.

PT. KS imports steel basic material in the form of pellet direct reduction (DR) from Brazil, Chili, Sweden and Bahrain. PT. KS imports processed iron ore including sponge iron (with Fe content of 90%-98%), pellet, and pig iron (with Fe content of 95%). The company imports up to 2.5 million tons of the basic materials a year.

New investments

In the past two years, investors showed strong interest in doing business in iron ore industry in the country integrated with steel industry. The investors came from China, India and Australia teaming up with local partners.

PT Meratus Jaya Iron and Steel (PT. MJIS) is a joint venture between PT Krakatau Steel (66%) and PT Aneka Tambang (34%), building an iron ore processing plant with a capacity of 1 million tons per year of pig iron and sponge iron. The factory is being built over a 200 hectare plot of land in Batu Licin, South Kalimantan with an investment of Rp1.5 trillion. PT. MJIS is building a steel industrial complex in Kalimantan, seeking to tap the potential iron ore reserves in Kalimantan Operation of the factory will help reduce the country's dependence on imports for steel basic materials. PT Krakatau Steel, the country's largest steel maker has relied entirely on imports for pellet. It imports 2.5 million tons of iron pellets a year from Australia and Brazil.

In the first phase, PT. MJIS will have a production capacity of 315,000 tons of sponge iron per year. It will start operation in 2013. In the first phase it will process only iron ore into pig iron and sponge iron. The process of smelting will be in the factory of PT KS in Cilegon. Sponge iron from MJIS will be enough only to meet one sixth of KS's requirement which so far has been entirely supplied through imports.

Iron ore for PT. MJIS will be supplied by PT Sebuku Iron Leteric Ore (SILO) under a 15-year contract. PT. SILO has a deposit of 20 million tons of iron ore. PT. MJIS also has contracts with a number of other companies including with PT Arutmin for coal supply, and with PT Johnlin to provide port infrastructure.

PT. MJIS is building a 30-MW power plant utilizing gas waste from the iron ore factory for fuel. The power plant is estimated to cost Rp220 billion. The company is also building 16-km water pipeline with an investment of Rp 40 billion.

PT. Jogja Mangasa Iron (PT. JMI) is a joint venture between PT Jogja Mangasa Mining (30%) and Indomines Limited from Australia (70%), building an iron ore processing plant with a capacity of 3 million tons per year.

PT. JMI holds a 30-year working contract (KK) for iron sand mining and to produce pig iron in Kulon Progo, Yogyakarta. The company started iron sand mining in 2011 and production of pig iron in 2012 PT. JMI invested US$1.7 billion in the project including US$ 600 million for mining and US$ 1.1 billion for infrastructure building a 350-MW power plant.

Salgaocar Mining Industries Pvt Ltd from India has established a joint venture with PT Sumba Prima Iron (SPI), a subsidiary of Merukh Enterprises, to develop iron ore mines in Sumba, East Nusa Tenggara.

JSK International Resources Co Ltd from South Korea established cooperation with the Aceh regional administration to develop iron sand mine, build smelter to process iron ore into billet The Company will invest up to US$ 1 million in the project.

PT Sebuku Iron Lateric Ore (SILO) operates an iron ore mine in Kota Baru, South South Kalimantan. The mine has an estimated reserve of 45 million tons of iron ore.

PT. SILO in cooperation with a consortium will build an iron ore processing plant with a processing capacity of 2.5 million tons per year to produce pig iron. The factory is to be operational in 2015.

PT Mandan Steel (PT. MS), a distributor of iron ore, is a subsidiary of CNR Group Holding Pte Ltd from Singapore, and Yongtong Special Stel Ltd, both controlled by China Nickel Resources of China. Yongtong Special Steel Ltd operates a steel mill in Gongyi, Henan, China. China Nickel Resources Holdings Co Ltd, a holding company of a number of steel makers in China, acquired nickel --iron ore mine of PT Yiwan Mining in South Kalimantan at a price of Rp2.3 trillion. Yiwan Mining operates an iron ore mine in the regency of Tanah Bumbu, South Kalimantan with a reserve of 177 million tons.

PT. MS is building an iron ore processing plant with a capacity of 5 million tons per year at a cost of US$ 500 million. The factory is located in Batu Licin, South Kalimantan to be operational in 2012.

PT Delta Prima Steel (PT. DPS) will produce sponge iron with a capacity of 100,000 tons/year. Its factory built with an investment of US$50 million, is located in Tanah Laut, South Kalimantan. The factory uses 2 units of machine from India and started operation in 2010. It also plans to produce billet.

PT. Gunung Garuda and PT. Semeru Surya Steel of the Gunung Garuda Group operate iron ore factories with a production capacity of 900,000 tons and 460,000 tons per year. The factories are located in South Kalimantan.

JSK International Resources Co Ltd from South Korea has invested US$ 1 million in Aceh to develop iron ore mine and a processing plant to produce billet.

PT Gainet International Indonesia (PT. GII) is a joint venture between a Chinese and local company building an iron ore processing plant with a capacity of 600,000 tons per year at a cost of US$ 4 million. The factory is located in West Sumatra processing iron ore to produce semi finished steel products for exports. The factory uses Chinese technology and equipment with Chinese standards. The iron ore in Teluk Bayur, West Sumatra have a low Fe content of 40%-60%. PT GII will process the iron ore to increase its Fe content to 65% or higher to meet the international standard.

PT Merukh Iron & Steel cooperated with Paul Wurth S.A and SMS Siemag AG, to build two iron ore processing plants with a capacity of 70 million tons per year. The factories are located in Sumba, East Nusa Tenggara with an investment of 35 billion euro. According to plan, the factory will be operational in 2015. The two factories will utilize potential iron ore reserves in Sumba. The iron ore reserves in West Sumba are estimated to hold a deposit of 977 million tons of iron ore with Fe content of 68%. The factories will process iron ore produced by PT Sumba Prima Iron (PT. SPI) with a reserve of 1,000 million tons. PT. SPI which is a subsidiary of Merukh Enterprises cooperates with Salgaocar Mining Industries Pvt Ltd from India to develop iron ore mine on the island of Sumba.

Government policy

--Presidential Regulation No. 28 of 2008 on development of clusters of steel industries using local basic materials.

--Regulation of the energy and mineral resources minister No 34 of 2009 on mineral and coal supplies with priority for domestic interest.

The government has issued a number of strategic polices called National Road Map of Added Value of Mining Industry to be implemented in three phases. The first Phase (2006-2010), was to develop integrated industry in the upstream sector, the second Phase (2011-2015), is to increase capacity and development of products and the third Phase (2016-2020), and is to improve competitiveness and sustainable growth.

--The Law on Mineral and Coal Mining No 4 year of 2009, rules that in 2014, mining companies are not allowed to export raw minerals including iron ore. Mining companies, therefore, are required to process their minerals in the country or build smelters to refine their raw minerals before the materials are ready for export.

Exports of iron ore allowed with a Fe content of at least 94% or in the form of sponge iron with an iron content of 90%. The regulation will be effective in January 2014.

Exports of iron sand are allowed in the form of pig iron with an iron content of more than 94%.

The policy is to increase the added value of the domestic commodities, to better guarantee supply of steel basic materials and to open more jobs in the country. The announcement of the policy has prompted plans to build smelters in the country to processed iron ore into pig iron.

Implementation of the regulation, however, is not easy as building a smelter will cost at least US$600 million and construction will take 3 to 6 years. Another big problem is inadequate infrastructure mainly power generating facility to supply power to the smelters and refineries. Smelters need large supply of power. Electricity makes up 30%-40% of the production cost. Therefore, there should be guarantee in power supply to encourage investors. The process of production must not be interrupted by shortage in power supply as unplanned stoppage of operation would cause damage to the facilities.

The operators of smelters or refineries, therefore, must not rely on PLN for power supply. They need to have their own power plant which means mush larger investment is needed.

Conclusion and prospects

There has been no iron ore processing factory in Indonesia. So far the country has exported its iron ore production to be processed by the importing countries. Indonesia re-imports the material after being processed into pig iron, pellet or sponge iron. The country's midstream steel industry like slab and billet factories entirely depend on import for the basic materials because of the absence of iron ore processing facility in the country.

According to data from the energy and mineral resource ministry the country has iron ore resources estimated at 5.075 billion tons, with proven reserves of 115 million tons. The reserves are found in various areas in Indonesia such as in Aceh, West Sumatra Java, East Nusa Tenggara and Kalimantan.

Indonesia has exported its iron ore production mainly to China, the world's largest steel producer. Exports of iron ore has increased from year to year reaching 32.5 million tons in 2011 up from only 6.4 million tons in the previous year.

The prospects of investment in iron ore processing industry are encouraging in the country with big market open in the country. Demand for pig iron and other steel basic materials produced from iron ore has increased from year to year in the country. So far the country has depended entirely on imports for the basic materials such as pig iron and sponge iron. The availability of large iron ore reserves has attracted investors to build iron ore processing factories in Indonesia. A number of investors have come from China, Singapore, India, Australia and South Korea. According to data from the energy and mineral resources ministry, by 2015, a number of iron ore factories are expected to come on stream including those of PT. Meratus Jaya Iron Steel, PT. Mandan Steel, and PT. Jogja Mangasa Iron with production capacity of 1 million tons to 5 million tons per year.
Table--1
Indonesia's iron ore resource and reserves, 2010

Description Volume (tons)

Resources 5,075,637,708
Reserves 115,494,000

Source: Energy and mineral resources ministry

Table--2
Exports of iron ore, 2008--2011

Year Volume of exports Growth
 (million tons)

2010 6,4 --
2011 32,5 407%

Sources: Trade ministry

Table--3
New investment in iron ore processing industry, 2011-2015

 Name of company Location Capacity (tons/ year)

PT. Gainet Teluk Bayur, West Iron ore--
International Sumatra 600,000
Indonesia

PT. Mandan Steel Batulicin, South Iron ore--5 million
 Kalimantan

PT. Indoferro Cilegon, Banten Iron ore--1,5
 million

PT. Delta Prima Tanah Laut, South Iron ore--
Steel Kalimantan 300,000
 Sponge iron--
 100,000

PT. Semeru Surya Tanah Laut, South Iron ore--
Steel Kalimantan 460,000
 Pig iron--
 100,000

PT. Gunung Garuda Iron ore--900,000

PT. Meratus Jaya Batulicin, South Iron ore--1
Iron Steel Kalimantan million

PT. Jogja Mangasa Kulonprogo, Iron ore--3 million
Iron Yogyakarta
 Sponge iron--1
 million

PT. Sebuku Iron Kotabaru, South Iron ore--
Lateritic Ore Kalimantan 2, 5 million

PT. Merukh Iron & Sumba, East Nusa Iron ore---7
Steel Tenggara million

 Name of company Foreign investors Investment Start-up
 (Share %) year

PT. Gainet China US$ 4 million 2011
International
Indonesia

PT. Mandan Steel China Nickel US$ 500 2012
 Holding million
 Resources,
 China--

PT. Indoferro Singapore US$ 40 2012
 million

PT. Delta Prima Yemen US$ 50 2012
Steel million

PT. Semeru Surya -- US$ 100 2012
Steel million

PT. Gunung Garuda Gou Feng, China N.a 2013

PT. Meratus Jaya -- Rp 1.5 2013
Iron Steel trillion

PT. Jogja Mangasa Indomines Ltd, US$ 1.7 2013
Iron Australia--70% billion

 2014

PT. Sebuku Iron N.a Rp 5 trillion 2015
Lateritic Ore

PT. Merukh Iron & -Paul Wurth SA 35 billion 2015
Steel -SMS Siemag AG, Euro
 Germany

Sources: Industry ministry and ICN
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Title Annotation:INDUSTRY
Comment:Iron ore processing (iron making) industry in Indonesia.(INDUSTRY)
Publication:Indonesian Commercial Newsletter
Article Type:Sound recording review
Geographic Code:9CHIN
Date:Nov 1, 2011
Words:3828
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