The outgoing Indonesian president Joko Widodo banned nickel exports back in 2020. The move kickstarted investment into downstream nickel mining and nickel processing facilities in the country — a policy that drew some US$22 billion in 2022 alone, said Jaipuriyar at the Singapore Commodity Market Insights Forum 2024 on March 6.
Downstreaming refers to Indonesia’s plan to take advantage of the country’s vast nickel reserves and ore production to add value by processing raw ore into higher-grade nickel intermediates.
These higher-grade nickel intermediates are used to produce stainless steel and nickel cobalt manganese-based EV batteries.
However, London Metal Exchange (LME) nickel futures have fallen more than 20% over the past year to around US$17,832 ($23,728) per tonne for the month of March.
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Still, this marks a four-month high for futures contracts of the key commodity, illustrating the volatility of the market.
According to Jaipuriyar, the “abundance” of supply out of Indonesia, which is “either partly or wholly owned by Chinese companies”, was the main reason for nickel prices falling some 40% in 2023. “We’re expecting nickel prices to go down by 24% in 2024 and we’re expecting the nickel market to be in surplus until 2028.”
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Oversupply and entrenchment Indonesia has built up a “very substantive” nickel downstreaming sector over the past three to four years, says Ong Sin Beng, chief economist, Asean, at JP Morgan.
Speaking at a media briefing on March 5, Ong wonders if the market can absorb this influx in production. “The degree of supply [Indonesia] put into the system is actually quite substantial… Nickel prices have actually come down. So even though there’s a lot of excitement about the EV sector picking up in Asean, what’s happening in Indonesia is a certain degree of oversupply.”
S&P’s Jaipuriyar says this “price collapse” has led to shutdowns of nickel mines in Australia and New Caledonia, a French overseas territory located in the southwest of the Pacific Ocean.
Just last month, mining giant Glencore announced it is selling its stake in its New Caledonia nickel plant and halting production for six months while it seeks a new investor for the loss-making business.
“What does all of this mean?” asks Jaipuriyar. “It further entrenches Indonesia — and by virtue of Chinese dominance in the Indonesian mining industry, it entrenches China — in this very critical mineral supply chain. It puts Indonesia on the frontline of US-China competition.”
Enter Prabowo
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This is the mantle that awaits the likely incoming president Prabowo Subianto, with official results from the Feb 14 election day expected later this month.
“It’s a very interesting dynamic that Prabowo is going to be stepping into,” says Jaipuriyar.
Prabowo, who has served as Indonesia’s defence minister since 2019, was elected mainly on the promise that he will carry on Jokowi’s economic policies and policies in the commodity sector.
He is widely expected to pursue Jokowi’s foreign policy of non-alignment, says Jaipuriyar. “But given his background, we also expect him to get into a little bit of hedging where foreign policy is concerned; he will maximise relations with China but also advance relations with other countries, which Indonesia could benefit from.”
China’s hold over the Indonesian nickel industry could see the country increase its “adventurism” in the South China Sea, Jaipuriyar adds.
“Given Prabowo’s background as defence minister, we don’t expect him to sit back and take it lightly. All this could lead to some disruption in nickel mining, at a time when Indonesia is a major source for this critical mineral.”
In addition, Jaipuriyar is “surprised” that Prabowo has not broached the topic of sustainability in the nickel industry, given that Europe has banned palm oil imports from the country, accusing it of contributing to deforestation. “We will have to wait and see if they feel the pressure to put in place more sustainable practices.”
A future without nickel?
Indonesia has yet to translate its dominance in nickel into an uplift for economic sentiment, says JP Morgan’s Ong. “Outside of that specific sector, we’re not really seeing that, unfortunately.”
He points to the “old commodity cycle”, from the time China joined the World Trade Organization in 2001 to 2012. “It really reinvigorated the animal spirits across the country; the capital spending was evident.”
This is missing today, he adds. “You’re not seeing that broad-based expansion in sentiment emanating from that particularly downstreaming component.”
Developments in EV tech, such as lithium iron phosphate technology and hydrogen-powered fuel cells, may also render nickel obsolete in the coming years.
