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Navigating Indonesia’s nickel dominance: Challenges and opportunities in the EV era

The recent acquisition of PT Vale Indonesia, a nickel miner, by state-owned mining holding company MIND ID has solidified the Indonesian government’s influence in the nation’s nickel industry. With a 34 percent stake, the government now holds a majority share, controlling the largest nickel concessions in Sulawesi.

This control becomes crucial amidst the global supply glut attributed to Indonesia’s rapid nickel production growth, fueled by the mineral downstreaming policy. Without meticulous production planning, Indonesia risks depleting its nickel reserves before realizing its ambition to become a global hub for the electric vehicle (EV) industry.

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As reported by Reuters in February, nickel prices have fallen to around US$16,000 per tonne from a record high of $100,000 in 2022. The surge in Indonesian production, contributing over half of the total global supply (around 3.4 million tonnes) last year, has disrupted the market. In 2020, Indonesia accounted for only 30 percent of the global supply.

Driven by low-cost production, Indonesia’s dominance has led to a market downturn, prompting other miners, like BHP, to consider halting operations at the only nickel smelter in Australia due to operating losses.

Christel Bories, the head of French mining company Eramet, predicts Indonesia could represent over 75 percent of the world’s highest-grade pure nickel in five years, posing significant challenges for competitors in other regions.

Despite Indonesia’s market leadership, it does not automatically translate into a key player in the EV industry. Most Indonesian smelters use Rotary Kiln Electric Furnaces (RKEF), producing nickel pig iron (NPI) and ferronickel for stainless steel, not EV batteries. Energy Shift Institute notes that three-quarters of the country’s intermediate nickel exports, mainly to China, consist of NPI and ferronickel.

Without expanding hydro-metallurgical high-pressure acid leaching (HPAL) smelters for battery-grade products like mixed hydroxide precipitate (MHP), nickel matte, and nickel sulfate, Indonesia may remain a major stainless-steel supplier.

While Indonesia could continue profiting from smelter production, the long-term outlook suggests depletion of nickel reserves before the local EV industry takes off. Reopened mines outside the country may then become major producers. To avert this scenario, Indonesia needs to build more HPAL smelters, accelerate EV battery plant development, explore non-nickel battery technologies, and strengthen partnerships with other major nickel-producing countries.

The proposal for an OPEC-style nickel organization, previously introduced by President Joko Widodo and Investment Minister Bahlil Lahadalia, could enhance coordination among producing countries in managing supply and prices. Now might be the opportune moment to proceed with this plan.

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