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Commodities

Nickel-rich Indonesia draws global suppliers of EV battery materials

BASF and Sumitomo Metal Mining tap world's largest reserves amid ore export ban

A worker at a nickel processing plant: Indonesia has banned the export of nickel ore to encourage companies to process the metal domestically instead.   © Reuters

JAKARTA/TOKYO -- From Germany-based BASF to Japan's Sumitomo Metal Mining, overseas companies are rushing to set up nickel-processing facilities in Indonesia as the country bans exports of raw ore.

Nickel is a critical part of electric-vehicle batteries, and Indonesia hopes to leverage its rich reserves to establish a domestic battery supply chain. But aggressive policies by the world's largest producer of the metal have also raised concerns over the negative impact of resource nationalism.

BASF and French nickel processor Eramet are considering building a nickel- and cobalt-refining complex in Indonesia to begin operations in the mid-2020s. The facilities would supply an annual 42,000 tons of nickel and 5,000 tons of cobalt, for use in cathode materials for lithium-ion batteries.

Sumitomo Metal Mining has also expressed strong interest in bringing an Indonesian refinery online in mid-decade, an investment possibly worth billions of dollars.

Three nickel-refining plants are under construction in Indonesia to begin operations by 2023, according to the Ministry of Energy and Mineral Resources, including a facility for state-run mining company Aneka Tambang. New projects by BASF and others would only add to the buildup in Indonesian capacity.

Companies are particularly interested in the country for its rich reserves. Indonesia produced an estimated 760,000 tons of nickel in 2020, with another 21 million tons in reserves, according to the U.S. Geological Survey -- both the largest figure in the world.

The country accounts for roughly 30% of the world's nickel production and about 22% of global reserves and is critical to ensuring a stable supply of battery materials.

Indonesian policies have also pushed companies to set up refineries locally. The government put into effect a ban on exports of unprocessed nickel ore in January 2020, two years earlier than expected. It also announced a new law in June that would essentially ban exports of copper concentrate and bauxite by 2023.

Indonesia has suffered a persistent trade deficit in recent years amid surging imports of petroleum. The export bans are designed to encourage companies to process ore in Indonesia and instead export higher-value-added items to curb the trade imbalance, while attracting investment, creating jobs and acquiring technological know-how.

They also mark a second chance for the Indonesian government. The country had imposed a ban on mineral ore exports in 2014, only to walk it back after failing to attract corporate investment.

Demand for nickel has since surged, thanks to electric-vehicle batteries, and companies are now eager to invest in Indonesia. Omnibus legislation signed by President Joko Widodo in November aims to lure more foreign investment by streamlining notoriously complex regulations.

Confident that it is better equipped to bring in foreign companies this time around, the Widodo administration also hopes to encourage local production of the vehicle batteries themselves. Four state-run companies across different sectors, from mining to electricity, set up the Indonesia Battery Corp. in March.

Major corporations related to electrics, including LG Chem, Tesla and Contemporary Amperex Technology, or CATL, have expressed interest in helping to create an Indonesian battery supply chain, according to the Indonesia Investment Coordinating Board.

Indonesia will join the ranks of advanced economies by establishing an electric-vehicle battery industry, according to Bahlil Lahadalia, chairman of the investment board, also known as BKPM.

But resource nationalism could also disrupt greater global supply chains.

Stainless steel producer Nippon Yakin Kogyo used to import more than half its nickel ore, a component of ferronickel, from Indonesia. "We were forced to switch to a New Caledonian supply" in response to Indonesia's recent export restrictions, said Kenji Nagata, an executive officer.

Such countries as the Philippines are also interested in ramping up nickel production, meaning that aggressive policies could cost Indonesia demand.

These developments have impacted nickel prices as well. The Indonesian government formally announced its ban on ore exports on Sept. 2, 2019. That same day, three-month futures for nickel rose to $18,060 per ton on the London Metal Exchange -- roughly 50% above where they were in July, before rumors of the ban began circulating.

Prices have since settled slightly but remain high. "Greater influence by producing countries could exert upward pressure on prices," an industry insider said.

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