August 2022
Indonesia is experiencing the fastest demand growth for both mined and finished nickel. Finished nickel demand surged from virtually zero in 2016 to almost 400kt within five years. While mined demand also saw a massive jump since the 2020 ore export ban.

But is it ‘Green’?

Indonesia is targeting carbon neutrality by 2060. A pilot carbon trading scheme has recently been launched to help reduce emissions from coal energy plants. There is currently no carbon tax on nickel production. In 2020, Indonesia was estimated to have released 589.5Mt of emissions. The country's volume of emissions has been gradually increasing as it develops its manufacturing-based economy.

CATL is expanding its portfolio of sustainable battery projects with the construction of a recycling facility and a cero-carbon manufacturing plant. This facility will be an example for the rest of the company’s production facilities moving forward.

Tsingshan’s integrated RKEF-AOD operation design has also reduced energy consumption and emissions, as the heated ferronickel is charged directly into the stainless-steel mills.


Finished Nickel Demand

Indonesia is the second largest source of finished nickel demand. AME is forecasting it to require 96kt of finished nickel products in the September quarter, which will flow through to an annual demand of 380kt at the end of 2022. This is 0.8% lower than the demand of the previous year. Demand is not expected to increase in 2022 as stainless-steel demand has reduced, especially in China, due to the pandemic.

In the medium term, finished nickel demand will grow by a CAGR of 2.8% to reach 436kt in 2027. Gradual growth is expected as the stainless-steel sector continues to develop. The proposed implementation of export taxes on mid to low grade products will provide upside to finished nickel demand, as more capacity for downstream processing will have to be built out.

In the long term, finished nickel demand will reach 563kt in 2040, growing by a CAGR of 2%. While stainless-steel continues to drive nickel production, battery production is expected to have an increasingly influential effect on the market.

The government is aiming to have 13m electric motorcycles and 2.2m electric cars on its roads by 2030. It is also requiring two thirds of future battery production to be shifted to satisfy domestic EV demand, with one third remaining for export. EV manufactures will also be required to source 80% of supply materials from within the country to further drive Indonesian production capacity. This ambitious target will fuel finished demand in the long term.



A Hub of Foreign Investment

Chinese manufacturers have shifted their ferronickel production capacity to Indonesia following the 2020 ore export ban. These companies, including Tsingshan, have co-developed the EAF-based steel production capacity within the country.

This has greatly boosted ferronickel production, which directly increases finished nickel demand. The country is also joining the foray in battery production, with numerous projects being announced. Producers want to integrate their production, so that processing facilities can be located next to where the raw materials are being mined.

The President of Indonesia has met with Tesla CEO Elon Musk to discuss possibilities of a collaboration. Tesla has highlighted its preference for sustainably produced nickel in the past. A potential collaboration between the two indicates that Indonesia will soon be phasing out its coal powered operations.

The government has reiterated its plans to implement an export tax on finished nickel products of below 70% grading. This will be enacted progressively starting at 2% in 2022. This will have an immediate effect on nickel demand, as companies scramble to rearrange and develop processing operations downstream.

The world’s largest lithium-batteries producer, Contemporary Amperex Technology Co Ltd (CATL), is partnering with PT Aneka Tambang (ANTAM) and PT Industri Baterai Indonesia (IBI) to establish a US$6bn joint venture in East Halmahera. Construction will begin in 2022 and will be completed by 2026. A battery recycling facility will also be constructed.

LG Energy Solutions is planning to construct a US$9.8bn integrated batteries project in Batang Industrial Park in Central Java. Construction of the nickel processing facility has commenced and 150ktpa of nickel sulphate will be produced. This will be fed into a 200GWh battery plant.

LG will sign a supply agreement with ANTAM for nickel laterite ore. The group also signed an agreement with Hyundai Motor Group in 2021 to construct an EV battery plant in Karawang. The plant will have a capacity of 10GWh, which would be enough to power 150k EVs.

Traditionally, demand has been dominated by ferronickel for the production of stainless-steel. Tsingshan is the largest producer of stainless-steel, and it also has the largest presence in Indonesia. Its integrated supply chain in the Indonesian Morowali Industrial Park (IMIP) includes operations from nickel mining, ferronickel production to stainless-steel manufacturing.



Mined Nickel Demand

Indonesia is the largest source of mined nickel demand, with a forecast demand of 284kt in the September quarter. This will lead to an annual demand of 1,130kt, a 13.6% increase from the previous year. Foreign investment is still flowing heavily from China into the nickel processing sector, which has been expanding production capacity. Projects are still beginning to resume and ramp up production following pandemic related suspensions.

AME is forecasting a mined nickel demand of 1,411kt in 2027, which is equivalent to a CAGR of 4.5%. Growth rate is expected to be slower as the processing market starts to become saturated. Demand from intermediates production such as MHP and matte will be larger as they will be fed into the production of nickel sulphate for the battery sector.

HPAL plants are also going to shift towards producing sulphates from their MHPs instead of offloading them to third parties. This will make operations become more integrated and manufacturers will have tighter control over their supply chains.

In the long term, demand is expected to keep growing at a CAGR of 6.3%, reaching 3,156kt in 2040. Indonesia is expected to maintain its reign as the largest demand source, contributing to almost half of total global demand even in the long term.

This will be driven by increased demand from both the production of ferronickel and battery grade nickel products. As Indonesian operations become more integrated, other countries will opt to offshore nickel production there, as long as foreign investment policies remain friendly.



Integration of Operations

Around 92% of mined nickel is used in the production of ferronickel, with the remaining 18% in the production of intermediates and matte. The biggest demand source of mined nickel comes from Tsingshan’s own integrated operations in IMIP. The RKEF lines smelt the laterite ore into ferronickel, which are then fed directly into its stainless-steel production lines.

Another Chinese manufacturer of stainless-steel, Delong Holdings, owns the Konawe ferronickel smelter through its subsidiary PT Virtue Dragon Nickel Industry (VDNI).

Mined ore will also become increasingly demanded from the HPAL operations when they successfully ramp up in two to three years. This includes the Halmahera Persada Lygend project, as owned by Harita Group and Ningbo Lygend, as well as Huayou Cobalt’s Huayue, Tsingshan and CATL’s QMB Sulawesi project.