Optimizing Indonesia’s Nickel Industry for the Electric Vehicle Battery Market
Executive Summary
Indonesia’s nickel reserves have positioned Indonesia favorably in the global electric vehicle (EV) battery supply chain. The country’s ban on raw nickel ore exports and emphasis on value-added production have attracted significant foreign direct investment, enhancing its economic profile and establishing a blueprint for sustainable resource management.
Indonesia’s nickel production, currently sits at 1.8 million tonnes, is set to meet and potentially surpass global demand for EV batteries through 2050.
Indonesia’s policy to ban raw nickel exports has increased the country’s market leverage, with the potential to amplify economic benefits by moving up the nickel value chain—from USD 30 per tonne for raw ore to as much as more than USD 3,600 for refined products.
With foreign direct investments in its metal industry climbing from $5.97 billion in 2020 to $11.79 billion in 2023, it signals strong market confidence to Indonesia, indicating the need for an investment strategy that enhances Indonesia’s status as a sustainable and innovative leader in the global nickel industry.
Introduction
Indonesia stands as the world’s largest producers of nickel, a critical component in the manufacture of lithium-ion batteries, which are essential for Electric Vehicle (EV). With its significant nickel reserves, Indonesia is a major player in the EV battery supply chain. The 2023 Critical Minerals Market Review represents Indonesia at the helm of global nickel mining and processing, accounting for nearly half of the world’s supply. The country’s ban on raw nickel ore exports has catalyzed domestic downstream industry growth and attracted significant investment, making Indonesia to host nearly 90% of the world’s planned nickel refining facilities from 2023 to 2030 (IEA, 2023).
Indonesia’s Role in the growing EV industry
Figure 1: Nickel demand for EV by scenario and Indonesia nickel production
Source: IEA (2023) & US Geological Survey (2024)
Indonesia’s remarkable nickel output, reaching up to 1.8 million tonnes in 2023 (US Geological Survey, 2024), has established its position as a key supplier for the EV battery market. Looking ahead, the demand for nickel for EV battery market is expected to rise significantly, and Indonesia is well-equipped to meet this increasing demand. According to the Stated Policies scenario, demand will continue to grow until 2045, which reflects the impact of existing policies. The Announced Pledges scenario, which includes all existing net-zero pledges, predicts an even greater increase, highlighting the critical role of Indonesia’s growing production capacity. In the boldest projection, the Net Zero by 2050 Scenario, demand reaches its highest, driven by the rapid uptake of EVs. Indonesia’s current production levels not only meet but may also exceed the future needs for nickel across these scenarios. Impressively, if Indonesia maintains its production rate from 2023, it is on track to supply enough nickel to meet the stated policy needs until 2050.
Significance of Nickel Export Ban
Figure 2: Nickel product price per Tonne
Source: CNBC (2023)
Indonesia’s export ban policy on raw nickel ore has strategically shifted the dynamics of the nickel industry, compelling a progression toward value-added production. This policy pivot is illustrated by the huge differential in the market price per tonne of nickel products. Basic raw nickel ore only costs USD 30 per tonne, highlighting the minimal value captured when selling unprocessed minerals. In contrast, intermediate products such as Nickel Pig Iron (NPI) and Ferronickel (FeNi) have higher prices, at USD 90 and USD 203 respectively. However, the true potential lies in the production of Nickel Matte and Mixed Hydroxide Precipitate (MHP), which secure prices of USD 3,117 and USD 3,628 per tonne, respectively. These figures underscore the economic consideration of Indonesia’s export ban. By encouraging domestic processing, Indonesia has the potential to capitalize on the highest tiers of the nickel value ladder, and maximizing economic benefits from its rich natural resources.
Indonesia investment strategy
Figure 3: Indonesia foreign direct investment for metal industry, 2020-2023
Source: BPS (2023)
Indonesia’s investment strategy in the metal industry, particularly for nickel, should be multi-faceted to maximize economic benefits. As evidenced by the substantial increase in foreign direct investment, growing from $5.97 billion in 2020 to $11.79 billion in 2023 (BPS, 2023), there is a clear appetite for involvement in Indonesia’s metal sector. To capitalize on this momentum, Indonesia should continue to refine its investment strategies, focusing on incentives that foster innovation and sustainability within the nickel industry. Such strategies might include tax benefits for companies engaging in environmentally responsible mining, grants for research and development in nickel processing technologies, and public-private partnerships that focus on expanding the nickel value chain within the country. By doing so, Indonesia can attract quality investment, encourage technological advancement, and position itself as a leader not just in nickel production, but in the ethical and sustainable supply of nickel crucial for the EV and renewable energy industries.
Conclusions
In conclusion, Indonesia’s rise as a leading producer in the nickel market reflects a strategic alignment with the growing global demand for EV batteries. The nation’s export ban has catalyzed a significant shift from raw mineral sales to the development of a downstream industry, as evidenced by the foreign direct investments and the developing domestic refining infrastructure. These investments not only fuel economic growth but also reinforce Indonesia’s commitment to establishing a sustainable and innovative nickel industry. As the world gravitates towards clean energy solutions, Indonesia’s investment strategy should focus on sustainable practices to not only protect the environment but also ensure its place at the top of the global transition to cleaner technology. By continuing to adapt its strategies towards sustainability and innovation, Indonesia can secure its position as a sustainable leader in the nickel sector.
References
Binekasri, Romya. (2023). Criticized by Faisal Basri, this is a calculation of the profits from downstreaming. CNBC. Retrieved from: https://www.cnbcindonesia.com/market/20230814142338-17-462770/dikritik-faisal-basri-ini-hitungan-cuan-dari-hilirisasi
IEA. (2023). Critical Minerals Market Review 2023. IEA: Paris. Retrieved from: https://www.iea.org/reports/critical-minerals-market-review-2023
Indonesia’s Central Statistical Agency (BPS). (2023). Investment Realization of Foreign Investment by Economic Sector (23 Sector) (Million USD), 2020-2023. BPS. Retrieved from: https://www.bps.go.id/id/statistics-table/2/MTgzOSMy/realisasi-investasi-penanaman-modal-luar-negeri-menurut-sektor-ekonomi--23-sektor-.html
US Geological Survey. (2024). Mineral Commodity Summaries 2024. US Department of the Interior. Retrieved from: https://pubs.usgs.gov/periodicals/mcs2024/mcs2024.pdf