Indonesia’s nickel export ban spurs rush into vital EV metal supplier

JAKARTA — From Asia to Europe to the U.S., multinationals have made moves into Indonesia to secure access to its vast reserves of nickel, as the country’s export restrictions fuel competition for an essential metal for electric vehicle batteries.

South Korean steelmaker POSCO Holdings on May 3 said it would would spend $441 million to build a nickel refinery on the Indonesian island of Halmahera, in North Maluku province. Construction is slated to begin by the end of the year, with the goal of starting operations in 2025.

Indonesia produced 1.6 million tonnes of nickel in 2022, more than any other country, according to the U.S. Geological Survey. It is tied with Australia for the world’s largest reserves, at 21 million tonnes.

Hoping to move his country up the value chain from raw commodities, President Joko “Jokowi” Widodo’s government in 2020 banned exports of unprocessed nickel ore. Companies that need the metal have responded by laying down capital.

POSCO’s refinery will produce nickel intermediates for use in rechargeable batteries that could power the equivalent of 1 million EVs.

The steelmaker is not alone. German chemical maker BASF and French miner Eramet will invest $2.6 billion in a refinery in North Maluku, which will produce a nickel-cobalt compound used in EV batteries. The heads of the two companies met with Widodo in Germany on April 16 to relay their plans.

“Investing in Indonesia means investing in a brighter future,” Widodo said at the Hannover Messe trade fair in Germany in April.

Nickel-hungry China has been at the forefront of investment in nickel production in Indonesia.

Foreign direct investment in Indonesia’s metals sector reached around $10.9 billion in 2022, with nearly 60% coming from mainland China and Hong Kong, according to the Indonesian Ministry of Investment. Some Chinese companies are believed to be investing through Singapore as well.

China has led the world in EV adoption and is believed to account for around 60% of global nickel demand.

Mainland Chinese, Hong Kong and Singaporean investments in Indonesia have largely focused on the provinces of Sulawesi and North Maluku, where much of the country’s nickel reserves lie. Chinese companies tend to be welcomed for their know-how on processing nickel, an industry source said.

Indonesian players have sought out Chinese partnerships ahead of going public. Trimegah Bangun Persada, part of local conglomerate Harita Group, brought a nickel smelter online in 2021 with China’s Lygend Resources & Technology. The facility became the first in Indonesia to use a process called high pressure acid leach to extract nickel from low-grade ores.

Better known as Harita Nickel, Trimegah listed on Indonesia’s stock exchange on April 12, raising almost 10 trillion rupiah ($673 million) — one of the largest initial public offerings of the year so far.

Merdeka Battery Materials, a nickel smelter under the umbrella of Merdeka Copper Gold, conducted its own IPO soon afterward and raised 9.2 trillion rupiah. Merdeka Battery partners with a unit of Chinese battery giant Contemporary Amperex Technology (CATL).

The rush for the Southeast Asian nation’s nickel has even brought U.S. and Chinese investors side by side. Ford Motor decided in late March to invest in the nickel smelting operations of Vale Indonesia in Southeast Sulawesi province, a project that counts China’s Zhejiang Huayou Cobalt among its stakeholders.

“I think they exercise very good judgment,” Sung Kim, the U.S. ambassador to Indonesia, told Nikkei about Ford’s investment. “They’re very careful to review all relevant factors before entering into a partnership. … So I see it as a very positive thing.”

Meanwhile, Japanese companies have a small presence in Indonesia. Sumitomo Metal Mining said in April 2022 that it will end its feasibility study on a nickel refinery in Southeast Sulawesi — the project that Ford is involved in — after taking the construction timeline and costs into consideration. Trading house Hanwa’s investment in a local nickel smelting project led by China’s Tsingshan Holding Group is one of the few instances in this field in which Japanese players are involved.

Nickel smelting in Indonesia has not been without problems. When Trimegah went public, an environmental group sent a letter to Indonesia’s stock exchange and financial services regulator claiming the company had polluted rivers and the ocean.

In January, a labor dispute broke out at a nickel smelting facility run by a Chinese company on the island of Sulawesi, leading to the deaths of a Chinese and an Indonesian worker. Widodo said in an interview with Reuters in March that oversight of the facility would be strengthened.

Nickel prices have been sluggish in part because all the investment in Indonesia has created an oversupply. While Jakarta has made no moves to force production cuts, government involvement poses a risk of its own. Elsewhere in the world, signs of protectionism have emerged over vital EV resources. Chile announced in April that it would nationalize its lithium industry, the second-largest in the world.