Indonesian Nickel Downstream Industry Backed By Chinese Giants

The downstream nickel industry is heating up in the nickel-rich islands of Sulawesi and North Maluku, making Indonesia one of the largest exporters of nickel pig iron, ferro nickel and stainless steel. Nickel production in Indonesia rose 54 per cent year-on-year to 1.6m tonnes in 2022.

Indonesia is working to unlock more investment related to electric vehicle batteries as the auto industry shifts from nickel to nickel-free batteries and builds facilities in other promising electric vehicle markets in Southeast Asia. The government is pushing to make nickel mining and processing more environmentally friendly to prevent a premature sunset on nickel batteries, while cash subsidies for electric vehicles have just officially come into force.

Cooperation with Australia, the world's largest lithium producer, is now a priority for Indonesia in its battery power ambitions. President Joko Widodo's goal is for 60 per cent of the world's electric vehicles to rely on batteries made in Indonesia. Meanwhile, the Philippines, the world's second-largest nickel producer, has rejected another strategic idea of an OpEC-style nickel alliance to control supply.

China is the largest investor in Indonesia's nickel downstream industry, with CATL, a privately owned Chinese company that is the world's largest battery producer, leading battery production. And Chinese state-owned Baowu, the world's largest steel producer, is poised to lead the way in stainless steel production, along with Tsingshan. Jindal, India's leading stainless steel company, is ready to be part of the Chinese ecosystem.

Future demand for nickel: As this corrosion-resistant material has the potential to be used in more automotive parts, the demand for stainless steel production is likely to be higher. At the same time, underlying demand for electric car battery production has weakened.

Indonesia has become one of the biggest exporters of nickel products thanks to support from the Chinese giant. But limited nickel resources pose a risk to Indonesia's ambitions to build a complete onshore upstream and downstream industry. Now the Indonesian government has come up with a policy plan to "fix the problem". At the same time, more investment is flowing in.

Indonesia is estimated to have more than 50% of the world's nickel resources. After decades of exporting resources, Indonesia has sought since 2009 to keep nickel processing at home. Joko Widodo's government envisions Indonesia becoming a power in electric vehicles and electric car batteries. Indonesia first required a nickel mining company to build a smelter, then banned exports of low-grade nickel known as limonite, a key mineral in battery production, from 2020.

Today, many downstream nickel industrial zones, mainly in Sulawesi and North Maluku, have begun or will soon begin. According to Indonesia's Geological Agency, the country has 18 billion metric tons of nickel resources and 5.2 billion metric tons of nickel reserves as of 2021, with about 90% of reserves located in these two regions.

The first onshore downstream nickel industrial zones include Indonesia's Morowali Industrial Park (IMIP) and Delong Industrial Park (VDNIP), both operated by Chinese steel giants Qingshan Mountain and Jiangsu Delong nickel. IMIP, located in Morowali in central Sulawesi, began construction in 2014, while VDNIP, located in North Konawe in southeast Sulawesi, began construction the following year.

Aoyama has also developed an industrial area called Weda Bay Industrial Park (IWIP) at Teluk Weda in Halmahera province in central North Maluku. Qingshan recently agreed to transfer some of its facilities to Bauwo, a Chinese state-owned company and the world's largest steel producer, according to reports. As one of the first companies to invest on a large scale in Indonesia's nickel downstream industry, Tsingshan Group has established strong partnerships within Indonesia.

Tsingshan is one of Huryou's partners in developing a nickel smelter in Indonesia. Huryou, a Chinese company specializing in the production of new energy battery materials, is part of a consortium working with Indonesia Battery Corporation (IBC), a battery holding company formed by four state-owned enterprises, to focus on building an integrated electric vehicle battery industry.

Another Obi Island nickel downstream industrial zone in Halmahera, North Maluku, has been launched and is expected to soon compete with production from the Aoyama Industrial Park. The driving force behind the industrial park is the local Harita Group. The company works with a number of Chinese companies, including Lygend Resources Group, the country's largest nickel trader.

Other industrial zones will be launched soon, including one that will support Vale Indonesia. Vale Indonesia is one of the world's largest nickel producers and owns one of the largest nickel mining rights in Indonesia. Vale Indonesia has signed cooperation contracts with China's Huayou, top stainless steel producer Posco of South Korea and US carmaker Ford.

The investment from a Chinese giant does make strategic sense for Indonesia, as China is the world's largest market for stainless steel and electric vehicles. The problem is that the existing downstream nickel industry produces more intermediate products. As a result, Indonesia is still seen as a supporter of industrialisation by China and other countries.

Indonesian nickel exports have risen sharply in the past two years, particularly to China, but mostly in the form of ferric nickel. Exports of stainless steel have risen sharply, but are still well below their maximum potential given Indonesia's vast nickel resources.

According to the Indonesian Nickel Miners Association (APNI), there are 43 nickel processing plants and 199 nickel furnaces in operation in Indonesia by 2022, and that number is set to grow. Most of these are rotary kiln electric furnaces (RKEFs), which process high-grade nickel called sapropelite to produce nickel ore and nickel iron needed for stainless steel. But only a handful of stainless steel plants operate domestically. The rest are using high-pressure acid leaching (HPAL), which processes low-grade nickel called limonite to produce battery material.