The Nickel Export Ban in Indonesia: Examining Economic Opportunities and Challenges

Indonesia Nickel Context 

Indonesia initiated its Ni mining exploration in the 1960s, with the first operational mine established in Sulawesi as early as 1901 (Arif 2018). The country possesses substantial Ni reserves, primarily concentrated in regions such as South Sulawesi, Southeast Sulawesi, Central Sulawesi, and North Maluku with proven reserves amount to 21 million metric tons, which accounts for approximately 15% of the global Ni reserve (Wulandari, Soerawidjaja et al. 2017). According to U.S Geological Survey, Indonesia has been classified as the largest Ni producing countries with total of 606,000 tonnes being produced in 2018 and 800,000 in 2019 (Table 1) (Survey 2020). 

In global market, Indonesia has exported $5.16M Ni up until 2021 with the main destination of exports to China ($4.4M), Germany ($443k), North Macedonia ($315k), Australia ($2.56k), and Japan ($1) (Figure 1) (OEC 2022). 

Figure 1: Export Destination in 2021

Source: The Observatory of Economic Complexity (OEC)

Given the aforementioned data, it is not unexpected that countries such as China and Germany have sought to address their Ni requirements through various means, capitalizing on Indonesia's significant Ni reserves. China, for instance, has initiated JV strategies aimed at securing access to Ni resources within Indonesia. Similarly, Germany and the EU have resorted to legal action by filing a lawsuit with the WTO. These actions reflect their efforts to navigate the dynamics of the Ni market and ensure a stable supply of this critical mineral.

Table 1 – World Mine Production and Reserves

Indonesia Ni resources encompass two distinct classes, namely Ni class 1 and Ni class 2, each characterized by varying compositions and applications. Ni class 1 is regarded as the primary source for battery production, featuring a Ni content of 99.8%. This high-grade Ni is predominantly employed in EV batteries, given its suitability for such applications (Merwin 2022). employing HPAL, Ni class 2 can be effectively processed into Ni class 1, thereby aligning with the government's objective of maximizing the potential of its Ni resources to support the global energy transition and achieve dominance in the decarbonization drive (Patunru 2023). 

From an industrial standpoint, Indonesia boasts a substantial presence in the Ni mining sector, housing 127 Ni mining companies out of a global total of 186, with the five largest projects are concentrated in Sorowako, South Sulawesi, with ownership belonging to PT Vale Indonesia that has total Run of Mine (RoM) around 4.2 million in 2021 (Data 2021). 

Figure 2: Nickel Producing Regions in Indonesia

Source: Asia Briefing

Nickel Price Speculation 

The Ni ore export ban has policy is anticipated to exert an influence on Ni prices. Analysis from the London Metal Exchange (LME) reveals that the policy had a significant impact on Ni prices. In 2014, the implementation of the policy led to a notable increase in the Ni price to $21,000 per ton, reflecting a substantial rise of 51.5% compared to the preceding period and year while in 2019, the Ni price experienced an upsurge to $18,050 per ton, representing a considerable increase of 41.9% (Lim, Kim et al. 2021). 

Figure 3 : Ni ore export ban policy’s impact to Ni price

Source : London Metal Exchange (LME)

The study from McKinsey also has shown a similar impact in 2019 in which Ni price rise around $17,000 to $18,000/ton from $12,000 in July (Figure 4). 

Figure 4 : Ni price in 2019, after the Ni ore export ban policy

Source : McKinsey and Co

However, it is worth noting that the baseline price of $12,000 for Ni in the context of 2019 was already considered relatively high compared to the range of $10,000 to $11,000 observed in 2018, can be attributed to the substantial surge in demand for critical minerals for EV that amounted to 60,000 MT in which will expand until 665,000 by 2025 (Figure 5) (Department 2023). 

Figure 5 : Ni price speculation from the Ni ore export ban policy 

Source : S & P Global

In analyzing the aforementioned figures, it is crucial to consider the impact of an external factor, COVID-19 pandemic. The pandemic exerted a significant influence on the Ni market, resulting in a decline of approximately 7% or $12,990 in Ni price compared to early 2019 (Sappor 2020). This downturn can be attributed to the shifting economic priorities of several countries during the pandemic-induced lockdowns. The reduced demand for Ni, coupled with lower production from mining companies, contributed to the decrease in price (Sappor, Rutland et al. 2020). 

Export Ban: Opportunities

1. Domestic Smelters Construction 

China has recognized the Ni ore export ban policy in Indonesia as an advantageous opportunity, leading to the establishment of JVs aimed at introducing HPAL smelter technology to the Indonesian market. For an instance, the commissioning of Indonesia's inaugural HPAL project on Obi Island in 2021, which entailed a substantial investment of $1.05 billion (Lygend 2021). This project was realized through a collaborative partnership between Ningbo Lygend from China and the Harita Group from Indonesia.

This export ban policy is widely perceived as a strategic maneuver aimed at transforming countries reliant on Ni imports into joint venture (JV) partners. Countries seeking to ensure a steady supply of Ni for their national and industrial requirements have limited options, with assisting the development of smelter facilities in Indonesia being the sole viable choice. (Table 2) (Silva 2023). 

Table 2 – Ni Processing Plant Project Investment 

2. Increase more Investment 

In Q2 of 2022, Indonesia witnessed a substantial influx of Foreign Direct Investment (FDI) from Germany, amounting to approximately $21.6 billion in which it represents a significant increase of 40% compared to the FDI inflows from Germany in 2021 (Wrede 2023). The notable surge in investment can be attributed to Germany's strategic approach of securing a proportion of the final Ni product for export, following the implementation of the ore export ban policy.

In 2020, Ministry of Investment and LG also signed $9.8 billion agreement for the EV supply chain (Medina 2023). Before having this policy, the possible contract will high likely being signed to the countries that able to process Ni ore from Indonesia.

3. Increase of Added Value 

In 2022, Indonesia has reached $30 billion compared to $1 billion for its Ni price, this will remain a positive news for Indonesia Ni industry considering the anticipate surge in Ni demand by 2025 (Medina 2023). 

Before the implementation of the Ni export ban policy, the total production capacity of Indonesia's Ni industry stood at approximately 200,000 tonnes, representing a value of $1.1 billion, with the introduction of new HPAL smelting technology capable of processing Ni below the 1.7% grade threshold, which was previously either exported to China or deemed waste, the total production capacity has experienced a substantial increase around 834,000 tonnes, equivalent to a value of $14.1 billion (Table 3) (UNCTAD 2017). 

Table 3 – Comparison of Value Added of New Smelting Capacity 

4. Job Creations 

The trends of building Ni smelters resulting from the ore export ban policy has led to the employment of approximately 7,500 workers in the industry in which will increase to 21,000 jobs after the completion of 4 ongoing projects (Table 4) (UNCTAD 2017). 

Table 4 – Indonesia Ni Smelter Project and its Impact to Job Creations

This is a good opportunity for Indonesia, looking at the total of unemployment rate is being increased sine COVID-19 for about 7.99 million until 2023 (Economics). Although the number will not significantly reduced that big unemployment rate, having more job creations in Indonesia trained with manufacturing skills will add more capacity building for these employees.

Export Ban: Challenges 

1. Environmental Price

One of the drawbacks associated with the HPAL offered by China is the tailings disposal, which results in approximately 1.4 to 1.6 metric tons (MT) of waste generated for every metric ton of nickel produced (Silva 2023). The issue of tailings disposal has raised concerns due to the environmental implications and unique geological factors present in Indonesia, such as high seismic activities and significant rainfall precipitation. For an instance, Dry stacking seems impossible to apply due to the rainfall precipitation in Indonesia that was about 2,782 mm from 1991 to 2020, this system has been tried in Gabon with less participation (1,867 mm) within the same range year and did not successful (Silva 2023). 

With this fact, Deep-Seabed Tailing (DST) has become the strongest option proposed by QMB New Energy Materials (China), PT Huayue Nickel and Cobalt (China), PT Teluk Metal Industry (Indonesia), and PT Fajar Metal Industry (Indonesia) in 2019 for their 12 MT waste (Ginting and Moore 2021). This will cost a biggest environmental implications since its location target is Coral Triangle, home for 600 different species and reef corals (WWF 2023). 

2. Carbon Emissions

One of the biggest controversial of carbon emissions issue in this smelter projects is the use of coal. Despite, having low-carbon emission as a selling point of HPAL, in its practice 1.26 GW out of 2.9 GW was coming from Coal-Fired Power Plants (CFPPs) that requires 6 MT/year (Ginting and Moore 2021). This even leads to a new construction of 3 x 380 MW CFPP in Indonesia in Morowali by Energy China in 2021 (Seetao 2021). The company’s defend was that the construction has been finished prior to Indonesia’s commitment to phase out from coal and coal only stands as temporary solution until finalizes its 7 GW solar, wind, and hydropower plants construction (Daly and Zhang 2021). 

Looking at the study case from PT Ceria Nugraha Indotama, their Nickel production target is 252,000 tonnes of ferronickel and HPAL (Reuters 2022). With this number, it requires 350 MW electricity supply coming from coal (Indotama). Compare with IMIP’s production target around 6.5 Mt (3 Mt for stainless steel and 3.5 Mt for crude steel) (Mackenzie 2022). It requires 9 GW for energy supply, that exceeds the capacity of renewable energy. Therefore, the possibility of using coal even after the renewable energy’s construction still stands as a big possibility. This will be a big problem for Indonesia that has a commitment to phase out from coal by 2040 (Arinaldo, Tumiwa et al. 2023). 

3. Nickel Price during the Smelters Construction 

During the period of smelter construction, mining companies faced limited options and were compelled to sell their ore to domestic smelters at prices that were significantly less competitive compared to exporting the ore (Sappor 2020). As the Nickel Miners Association reported that domestic smelters were offering a price of $27 per wet metric ton (wmt), which fell considerably below the government's recommended price of $34 per wmt and the global market price range of $43-$46 per wmt for ores below the 1.7% grade (Sappor 2020). 

Global Perspective 

Given Indonesia's prominent position in the international nickel market, several other nickel-producing countries, such as the Philippines and New Caledonia, have recognized this as a significant opportunity to cover the global demand for Ni. Since 2014, the first year of Indonesia’s news related to the plan of Ni ore export ban, the Philippines has increased their production to China (Durrant 2019). also happened, to New Caladonia that increased their production to 4Mwt from 1.57 Mwt in 2018 (Durrant 2019). Despite of its wide opportunities to increase their production, the number of 96 KT ore export from the Philippines still could not beat Indonesia’s 19,765 KT supply to the global world (WITS 2018). 

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