Indonesia to increase nickel dominance
The location of the ICMMS is well chosen. Not because of Bali’s famous beaches and hotels, but because Indonesia is the epicenter of the nickel industry – responsible for 55% of global nickel production in 2023.
“With abundant reserves of nickel ore and a government that is fully supportive of the industry’s development, Indonesia has rapidly emerged as the major supplier of nickel,” Fastmarkets analyst Olivier Masson said.
Fastmarkets analysts predict that 83% of the new nickel ore production to come online in the years to the end of 2028, will be in Indonesia, with global nickel ore production growing by 1.55 million tonnes and with 1.28 million tonnes of that growth coming in Indonesia.
Indonesia will also have a key role to play in nickel processing.
“Following the Indonesian government’s ban of nickel ore exports [in 2020], there has been a massive increase in the country’s production of refined nickel, mainly nickel pig iron (NPI), as well as nickel intermediates, such as mixed hydroxide precipitate (MHP) and nickel matte,” Masson said.
According to Fastmarkets data, Indonesia currently accounts for 67% of the world’s production of nickel intermediates and by 2028, Fastmarkets estimates suggest that Indonesian output will comprise 85% of the global total.
In terms of refined nickel, Indonesia currently produces 57% of the global total, and with Fastmarkets researchers estimating that Indonesia’s refined nickel production will have a combined annual growth rate (CAGR) of 8.1% between now and 2028, the country’s share will only continue to grow
Indonesia is therefore the key contributor to all nickel production processes, but Masson said it remains uncertain whether “Indonesian nickel mining can keep up with Indonesian nickel refining.”
“Maybe this was because of the slow approval process earlier in the year,” Masson added, “but imports of nickel ore – particularly from the Philippines – continued to rise in July.”
Responding to Indonesian dominance
The massive increase in Indonesian nickel supply has pushed down prices and the three-month London Metal Exchange nickel contract closed at $16,462 per tonne on Tuesday, September 3 – that’s down 47.10% since it closed at $31,118 per tonne on January 3, 2023.
As a result of the falling nickel prices and rising production costs, several Western nickel operations have closed since 2023.
Fastmarkets estimates that Western nickel operation costs range from $15,500 to $21,000 per tonne of nickel produced and most plant closures have come outside Indonesia, which is still ramping up nickel production despite the low price.
Western producers are struggling to find ways to compete, but one option could be to set up in Indonesia, which has a lower cost base. At present most Indonesian nickel operations are backed by Chinese investors, but the Indonesian government is keen to attact Western capital.
“The mostly Chinese involvement and the lack of a free-trade agreement with the United States means that Indonesia’s nickel is not compliant with the US Inflation Reduction Act (IRA),” Masson said. And being IRA compliant would make Indonesian nickel way more competitive in the US market.
“We hear reports that Indonesian authorities are seeking to reduce Chinese ownership of nickel operations in order to improve US Inflation Reduction Act compliance,” Fastmarkets analyst Andrew Cole said in a report published on July 30.
Could ESG footprint be Indonesia’s Achilles heel?
Indonesia has many advantages as a nickel producer. It has abundant nickel ore, low energy and labor costs and a well-developed eco-system of related industries. Yet could its adherence to environmental and social governance (ESG) be its Achilles heel?
One issue is that most of the nickel operations in Indonesia use coal-powered electricity. According to a public statement from Indonesia’s Ministry of National Development Planning that means Indonesia emits an average of 58.6 tonnes of CO2 for every tonne of nickel produced.
In contrast, BHP’s Nickel West operations in Western Australia – which will shut in October because it is uncompetitive in the current low nickel price environment – emits just 11 tonnes of CO2 for every tonne of nickel produced.
Fastmarkets defines low-carbon nickel as production that emits less than 18 tonnes of CO2 per tonne of nickel produced.
One solution would be making MHP in Indonesia, because it emits far less CO2 – approximately half – than other products, such as NPI or refined metal output. That’s because MHP has a less energy intensive production process. But MHP has a much higher moisture content, which leads to more intense water use and environmental contamination if the water treatment is not handled properly.
At present there is little market pressure on Indonesia to improve the ESG profile of its nickel industry, however, mainly because it “has mostly been driven by Chinese investment aimed at supplying its domestic stainless steel industry’s requirements,” according to Masson. And with around two-thirds of all nickel used by the stainless steel industry there is little ESG pressure – for instance, someone buying cutlery is unlikely to question the carbon footprint of the nickel content of that product.
However, “Indonesian nickel investment is now increasingly pivoting towards intermediates aimed at supplying the battery industry,” Masson added, and, while batteries currently account for just 15% of global nickel consumption, given the role of EVs in reducing CO2 emissions, there will be more pressure to evaluate the overall carbon footprint of the product, including the use of nickel.
But the market has yet to respond with the financial incentives that would be needed to keep low-carbon – but higher-cost – operations such as Nickel West open. And that means there is little financial motivation for Indonesian producers to invest in the ESG measures that could eradicate their current competitive advantage.
Fastmarkets assessed the nickel briquette low-carbon premium, CIF global, at $200-660 per tonne on September 2, narrowing down from $200-815 per tonne a week earlier.
Looking for transparency into how the nickel market will evolve when you access Fastmarkets’ price data and insights? Get a sample of the Fastmarkets nickel long-term forecast today.
