Rafi Adis Subarna – Indonesia has emerged as the leading force in the nickel industry, holding over half of the global market share in 2023. Since the downstreaming policy banning raw nickel ore exports was enacted in 2020, nickel mining and production activities have steadily risen, driven by robust global demand and an influx of investment in processing and smelting facilities across the country.
Indonesia's nickel ore output has seen a significant increase, more than tripling from 51.3 million tonnes in 2020 to 175.6 million tonnes in 2023. This rapid growth, driven by a strong push for onshore nickel processing, has led to an excess of processed or semi-processed nickel products. But concerns are rising due to a mismatch between the capacity of the nickel ore supply on the mining side and the demand for smelters on the production side.
Nickel sourced from and processed in Indonesia has been flooding the global market, leading to a supply glut and driving down prices worldwide. As a result, some miners outside Indonesia have been forced to shut down their operations. Indonesia was also blamed as a primary contributor to the decline in nickel prices in early 2024.
There are 44 nickel smelters in operation with a production capacity of 22.9 million tonnes per year in Indonesia. Out of 44 operating facilities, 40 are Rotary Kiln Electric Furnace (RKEF) smelters that process higher-grade saprolite nickel ore into nickel pig iron (NPI) and stainless steel.
The remaining four facilities use High Pressure Acid Leach technology to process lower-grade limonite nickel ore into mixed hydroxide precipitate, a material used in EV batteries. There are also 19 projects under construction and another seven facilities under feasibility study, totalling up to 70 nickel smelter plants nationwide.
The high number of nickel processing facilities in Indonesia has led to new challenges, particularly in sourcing the raw nickel ore for processing needs. Since late 2023, Indonesia has seen early signs of a supply shortage due to the rapid growth of processing and refining facilities, coupled with limited ore availability.
Indonesia's Ministry of Energy and Natural Resources has calculated that the country's total nickel reserves reached 5.3 billion tonnes of ore and 56 million tonnes of metal, including both proven and estimated reserves.
Despite having the world's largest nickel reserves and being the world's largest nickel producer, Indonesia has imported a record amount of nickel from neighbouring countries like the Philippines and Australia. In 2023, Indonesia imported 374,468 tonnes of nickel ore valued at US$16 million.
Inconsistent nickel supply due to permit delays has prompted companies to seek alternative ore supply from abroad. In June 2024, the energy ministry approved mining permits for 470 nickel companies for the 2024-26 period, with a combined production of up to 240 million tonnes annually.
Industry groups have called for the government to start the moratorium on the issuance of permits for RKEF smelters to prolong the availability of high-grade nickel reserves. The Indonesia Nickel Miners Association projected that the country's high-grade ore reserves may be depleted in the next six years. The Indonesian Nickel Industry Forum has also emphasised the urgent need for a moratorium, pointing out that the nickel ore processing capacity has reached 130 million tonnes annually, while the actual ore production falls short, not exceeding 100 million tonnes per year.
After extensive discussions throughout 2023 among government agencies about the need for a moratorium on RKEF smelters, the Ministry of Energy and Mineral Resources finally announced that a moratorium will be imposed, pending the issuance of relevant government regulations.
Besides ensuring a stable domestic supply, implementing the moratorium is crucial for maintaining price stability in the global market, considering Indonesia's significant market shares. Excessive production of processed nickel from Indonesia could lead to downward pressure on prices, resulting a decline in global NPI prices and hurting profitability for producers. Continued overproduction in the RKEF smelters could also accelerate the depletion of nickel resources.
Moving forward, the major task for the Indonesian government, including the administration to be sworn in October 2024, is to attract more companies to invest in High-Pressure Acid Leach facilities. These plants are crucial for processing nickel ore into battery-grade materials required for electric vehicle production, as the country aims to become a global electronic vehicle hub and reap the economic benefits from this burgeoning industry.
While developing High Pressure Acid Leach facilities remains costly due to high capital and operational expenditures, as well as technological and environmental concerns, the government needs to find effective strategies to foster more investment.
While accelerating investment in the country's nickel sector is essential for economic growth and job creation, it is equally important for the government to prioritise sustainability. Tighter regulations and the adoption of sustainable mining practices are necessary to mitigate negative impacts on the environment.
Ensuring a stable and secure supply of nickel through an RKEF moratorium is crucial for stabilising nickel supply, preventing the overproduction of certain outputs and balancing market demand. It will also manage the pace of resources extraction and prevent the rapid depletion of nickel reserves by enforcing stringent environmental regulations, ensuring sustainable long-term development.
[Rafi Adis Subarna is Research Analyst at KRA Group, Jakarta, Indonesia.]
Source: https://eastasiaforum.org/2024/09/14/smelters-squeeze-indonesias-nickel-ore-supply