Indonesia Tightens Export Controls on Key Commodities, Raising Supply Chain Concerns for South Korea

Indonesia has intensified export controls on key raw materials, including coal, palm oil, and ferro-nickel, raising concerns about potential risks to domestic supply chains in South Korea. With Indonesia accounting for a quarter of South Korea's total coal imports, experts are urging proactive supply chain assessments.

According to foreign reports on July 6, Indonesia began implementing a first-phase measure last month to supervise and monitor the export of these three critical commodities.

The Indonesian government plans to establish a dedicated agency for raw material exports, known as DSI, under the state-owned holding company Danareksa, to manage exports. Starting in January 2027, DSI will purchase export products directly before re-exporting them, transitioning from a structure where private companies export raw materials to a model that relies on state-run intermediaries.

As the world's largest coal exporter, Indonesia accounts for half of global trade in thermal coal. It also dominates the global supply of ferro-nickel at 96% and palm oil at 48%. Analysts suggest that the second-phase measures could significantly impact global supply chains by increasing the Indonesian government's influence over export pricing.

South Korea is expected to be affected by these tightened export controls. According to the POSCO Research Institute, South Korea imports 27 million tons of Indonesian coal, which represents about 25% of its total coal imports.

If Indonesia expands its influence over export prices and supply, it could lead to increased costs for coal-fired power generation. The battery materials industry, which relies on Indonesian ferro-nickel, may also face higher production costs due to rising raw material prices.

The backdrop to these measures includes economic challenges such as fiscal deterioration and the depreciation of the rupiah. President Prabowo Subianto has emphasized the need for stricter export oversight, citing significant losses due to price manipulation and underreporting in the raw material export process. He has also pointed out the issue of certain raw material prices being determined abroad, asserting that Indonesia must secure pricing power.

However, interpretations suggest that this move is also aimed at strengthening resource nationalism and enhancing Indonesia's bargaining power in international negotiations, given that the country has maintained export restrictions since banning raw ore exports in 2014.

This announcement comes amid ongoing tensions with China over high-speed rail debt, nickel pricing, and mining quotas. Approximately 95% of Indonesia's ferro-nickel exports and 43% of its coal exports are directed to China.

The POSCO Research Institute has analyzed that the export restrictions on key raw materials could serve as leverage in various negotiations with China, including those related to high-speed rail debt. As Indonesia continues to reinforce its resource nationalism through export regulations, experts are calling for proactive assessments of domestic supply chains.

Choi Boo-sik, a researcher at the POSCO Research Institute's Steel Research Center, stated, "There is a high likelihood of additional regulations on raw materials and products, and it is necessary to establish a monitoring system for this."