indonesias strategic maneuver to steady global nickel markets amid ev revolution 64

Market Trends

Indonesia's Strategic Maneuver to Steady Global Nickel Markets Amid EV Revolution


Lauren Miller

February 29, 2024 - 02:09 am


Indonesia's Stark Warning to Global Nickel Producers Amid Price Woes

London Metal Exchange

As the world's primary exporter of nickel, Indonesia has issued a cautionary statement for global producers of the valuable battery metal: do not harbor hopes for a significant resurgence in market prices. Septian Hario Seto, a pivotal figure in Indonesia’s rise to dominance in nickel processing, posits that prices are likely to hover around the $18,000 mark per ton on the London Metal Exchange. The Southeast Asian powerhouse is determined to ensure that the market remains abundantly stocked, aiming to facilitate lower production costs for electric vehicle (EV) manufacturers.

Seto, who serves as a deputy at the Coordinating Ministry for Maritime Affairs and Investment in Indonesia, emphasized the notion in a Wednesday interview. He articulated Indonesia’s strategic approach to fostering market equilibrium to maintain a steady nickel supply, particularly for the burgeoning electric vehicle industry. This clarity in the government's stance comes at a time when the global nickel industry grapples with volatile prices and uncertain market dynamics.

The nickel market experienced a sharp downturn last year, with prices plummeting by approximately 45%, and even briefly dipping below the $16,000 a ton threshold earlier in the month. This unsettling trend arose amidst waning demand and a substantial spike in supply from Indonesia, now accounting for over half the global output. The price plunge has left nearly 50% of all nickel operations around the globe in a precarious financial position, with some miners in locales such as Australia and New Caledonia contemplating permanent closure.

In the face of these challenges, Seto maintains that nickel prices should remain north of $15,000 a ton. He asserts that any value beneath this benchmark would force Indonesian smelters to scale back production. His assertion comes as nickel prices were observed at $17,630 a ton in early trading on the London Metal Exchange last Thursday.

Despite the gloomy landscape of declining metal prices, there remains a silver lining. Demand for nickel is anticipated to swell over a longer timeframe with the increased adoption of electric vehicles. Indonesia, forging partnerships with Chinese entities, has proactively geared up to harness this opportunity by establishing new processing facilities. These plants produce 'mixed hydroxide precipitate' (MHP), a nickel variant fashioned for the automotive industry. The nation projects that the production capacity of these facilities will magnify twofold within the next three years, poised to meet the sector’s escalating requirements.

Seto is confident that the intended boost in production will satisfactorily cater to the sector’s needs. The Indonesian view emphasizes keeping costs at bay for the EV sector, a critical component in guaranteeing that nickel-based batteries are not outstripped by cheaper alternatives, such as lithium iron phosphate batteries.

For further understanding, readers can explore the subject through the article: Nickel Faces Existential Moment With Half of Mines Unprofitable.

Looking back at the industry's recent history, Seto made a parallel to cobalt's experience three to four years ago when its soaring prices steered buyers to search for other metal options. His observation fortifies the Indonesian strategy of not just ensuring supply but also maintaining reasonable profitability within the battery ecosystem, without tipping into excess.

In a move towards more environmentally friendly production, Indonesia’s MHP output, which is largely derived from Chinese-owned operations, is becoming more frequently wrapped up in off-take agreements. The process of creating MHP is significantly less detrimental to the environment when juxtaposed with the coal-powered smelting that largely constitutes the nation’s nickel production; a factor that Seto deems crucial for electric vehicle firms that are highly attentive to their environmental impact.

EV companies, particularly those in Europe, are proactively seeking engagements with Indonesian producers to secure long-term nickel supplies, as confirmed by Seto. However, he did not disclose the names of the European carmakers involved in these negotiations. This development underlines the heightened importance placed on securing responsible sourcing channels by leading organizations within the automotive sector.

American automakers are also in the loop, albeit with concerns leaning towards the Chinese dominance in the global battery supply chain. Legislation such as the Inflation Reduction Act comes into play here, offering sizeable incentives for domestically produced EVs. The catch, though, is that these benefits apply only if the vehicles are manufactured with a limited portion of Chinese components.

In response, Indonesia is actively exploring a critical minerals agreement with the United States to ensure that its nickel is a pivotal element in the EV supply chains of American corporations. The Indonesian government has even put in motion initiatives to track nickel ore to mitigate issues related to environmental and labor standards compliance.

Seto underscored the multifaceted competition the U.S. contends with—not solely from China in regards to securing Indonesian nickel, but also from their European counterparts. This underscores the intense global jockeying for position in the electric vehicle component supply landscape and highlights Indonesia’s emerging influencer role in this sector.

This exclusive report, brought to you courtesy of Bloomberg L.P. (©2024), casts a spotlight on the strategic position of Indonesia within the global nickel market and outlines the country's impact on the evolving electric vehicle industry. In a world increasingly driven by sustainability concerns and the transition to greener technologies, Indonesia's approach in balancing market supply with cost considerations will likely reverberate across the international battery metal landscape.

What unfolds in the closes of the year will bear testament to the effects of Indonesia's policies on the global nickel market. As industry stakeholders from multiple continents vie for secure and environmentally conscious supplies, the republic’s play could very well dictate the pace and approach of nickel producers worldwide. Yet, it leaves the question open: to what extent will Indonesia's bid in controlling nickel pricing shape the future of electric vehicle production? Only time will yield the answers, as the world watches the industry adapt to the shifting grounds of commerce, policy, and sustainability.