Highlights of nickel industry landscape, prospects, and challenges.
As the world’s leading electric vehicle company, Tesla has submitted an investment proposal that will become a bright spot for the Indonesian mining industry, particularly nickel. Elon Musk, as the CEO and Co-founder of Tesla and SpaceX, has expressed his interest in Indonesian nickel on several occasions before finally having discussions with Indonesia’s government.
Indonesia’s mining industry has always been a mainstay commodity for many parties, both domestically and internationally. As the largest nickel producer in the world with the percentage of 24% of the world’s total nickel reserves, Indonesia has the potential to develop the electric vehicle industry. Nickel is the main material for developing the electric vehicle industry and the main component of electric batteries.
Elon Musk Investment
Tesla is the world’s leading electric vehicle and a clean energy-based company which leads the world’s transition to sustainable energy. Through his company, Elon Musk shows his interest in Indonesia’s nickel industry since nickel is the main raw material for making electric batteries used for electric cars.
On February 4, 2021, the Indonesian government received an investment proposal from Tesla (VOA Indonesia, 2021). Since December 2020, Indonesia President Joko Widodo and Indonesia’s Coordinating Minister for Maritime Affairs and Investment Luhut Pandjaitan have invited Elon Musk to glance at Indonesia’s natural resources(Jakarta Globe, 2021).
Growing Demand of Battery Grade Nickel
Nickel is one of the essential minerals needed to produce batteries for electric vehicles. Thus, as the electric vehicle market experiences impressive growth, the demand for nickel is also rising. Currently, to make the most of this opportunity, Indonesia aims to make EVs 20% of the country’s total car production by 2025. The efforts to make Indonesia the world-leading EV supply chain has projected the nickel processing plants to reach USD 20 billion by 2024.
Indonesia has the largest nickel reserves that can be processed into lithium-ion batteries and batteries for electric cars (Reuters, 2021). Indonesia’s nickel production reached 21 million metric tons in 2019 (US Geological Survey, 2019). This large number makes Indonesia the right country to develop the electric vehicle industry and the main component of electric batteries.
Apart from being the largest nickel producer in the world, Indonesia is also aggressively developing the electric vehicle industry based on Presidential Regulation (Perpres) No. 55 of 2019 concerning the Acceleration of the Battery-Based Electric Vehicle Program. Presidential Regulation 55/2019 is the initial regulation that is referred to as an umbrella of Indonesia’s electric vehicle law which is further followed by various other regulations. So that bureaucratic matters, licensing, and speed of implementation of regulations will be the keys to its success.
Indonesia’s Nickel Industry
Indonesia has an abundance of natural resources making mining one of the key sectors that contribute to the country’s economic growth. Indonesia accounted for 24% of the world’s total nickel reserves, making it the largest nickel producer in 2019 with nickel (Ni) contents ranging from 1.3% to 3.0% (US Geological Survey, 2020). The largest nickel production sites are located in the provinces of North Maluku, Southeast Sulawesi, South Sulawesi, and Central Sulawesi with mines operating largely in West Papua (Raja Ampat Regency), Maluku (West Seram Regency), and East Kalimantan (Paser Regency).
Covid-19 has been affecting nickel production since 2020. Health and social distancing protocols that force all activities in various sectors force nickel miners to not be able to do their jobs because nickel mining companies leave their employees off. Nickel production, which is targeted at 25 million tonnes by 2020, did not meet the target. However if its compared to 2019, nickel production in 2020 has also increased, namely up 10.18% for Nickel Pig Iron (NPI) products from 781 thousand tons in 2019 to 860.5 thousands tons in 2020, nickel matte up 27.36% from 72 thousand tons in 2019 to 91.57 thousands tons in 2020, and ferronickel up 27% from 1.15 million tonnes in 2019 to 1.46 million tons in 2020 (CNBC Indonesia, 2021). It can be concluded that regardless the operational process was affected by Covid-19, nickel production continued to increase and even achieved its success.
Apart from the problems in nickel production, exports of this commodity are getting a bright spot. Indonesia’s national economy is undergoing significant changes which pressure the government to take appropriate action to overcome it. One of the government’s economic policies that can be pursued is relaxation in the Mineral and Coal Mining (Minerba) sector, particularly nickel commodity. If the realization of this plan is carried out, Indonesia’s foreign exchange will increase and reduce the State deficit figure.
Nickel Ore Export Ban
In August 2019, the Indonesian government confirmed that the ban on nickel ore exports would come into effect on 1 January 2020, two years earlier than previously expected. According to Wood Mackenzie, two main drivers accelerating the ban forward:
- The government expects the ban to help Indonesia preserve its nickel or resources base for its rapidly growing nickel pig iron (NPI) and stainless steel melting industries.
- The ban is a relaxation of a previous ore export ban in 2017 that only allows the export of ore of a grade below 1.7%. The recent development of the new high-pressure acid leach or HPAL projects means that Indonesia can process lower grade ore domestically to meet the demand for EV battery raw material.
The ban was intended to divert material normally exported to countries such as China to support Indonesia’s growing nickel processing industry and support the domestic economy through higher valued export products. Through this ban, Indonesia seeks to develop a full nickel supply chain, from extraction, processing, and building EVs.
The ban was originally expected to increase Indonesia’s nickel price by 2020. However, due to the pandemic nickel experience demand destruction that caused lowered prices by 7% since the start of 2020 (Sappor, 2020). As a response, the Indonesian nickel miners’ association (APNI) proposed in April that the ban would allow exports of nickel ore to cover the negative impact on processed nickel exports due to the pandemic. However, the proposal was rejected by the Ministry of Maritime Affairs and Investment (Asmarini, 2020).
Opportunities: World’s Leading Primary Nickel Producer
The nickel industry offers huge opportunities in the future, despite the pandemic has negatively impacted Indonesia’s nickel sector and the Indonesian government’s effort to promote high quality nickel exports. Indonesia is projected to be the world’s leading primary nickel producer due to the increase in export, production, and government’s approval to build battery-grade nickel factories.
Increase of Primary Nickel Production
Although the ban posed some uncertainty around the future of nickel ore export, the ban is likely to increase the growth of Indonesia’s value-added nickel production capacity further in the following years. It is projected that Indonesia’s primary nickel output will increase to 930,000 tonnes by 2024. For instance, China’s Tsingshan Holding Group Co.Ltd. continues to develop NPI production in Indonesia and plans to increase its production capacity to 360,000 tonnes in 2020 (S&P Global, 2020). If the projection is true, Indonesia will be overtaking China as the world’s leading primary nickel producer.
Increase Construction of HPAL Plants
Indonesia is aiming to increase battery-grade nickel products to meet the increasing global EV demand. Thus, in January 2020, the government approved environmental impact studies for proposed factories that produce battery-grade nickel chemicals in Sulawesi Province (Morowali Regency). These approvals will allow investors to continue the construction of HPAL plants in Indonesia.
Increase of Export
Despite the potential challenges that the pandemic imposed, Indonesia’s primary production is expected to increase in the next few years. In 2019, after the ban announcement, it is estimated that Indonesia’s primary nickel production such as NPI, refined nickel, and ferronickel increased by 30% to 376,000 tonnes and first-half primary nickel production increased by 50% to 264,000 tonnes. Following the increase in production, it is estimated that Indonesia’s export of value-added products including NPI and ferronickel have increased by 125% to 900,000 tonnes at the beginning of 2020 (Global Trade Tracker, 2020).
Challenges: Ineffective Government’s Effort
The two biggest challenges of the nickel industry in Indonesia other than the negative impact of COVID-19 are the rapid change of regulation by the government that affected domestic players and the country’s lack of waste management system.
Rapid Change of Regulation
Over the past five years, Indonesia has rapidly changed regulation in terms of nickel ore exports. This has negatively affected the visibility of earnings and profitability among major domestic nickel ore producers. For instance, producers such as PT Antam Tbk., which is Indonesia’s largest nickel ore exporter, has experienced credit negative (S&P Global, 2020).
Lack of Waste Management System
Smelting for battery nickel produces large amounts of acidic waste full of heavy metals, and how to deal with the waste management is one of the important parts of the project. In Indonesia, companies often choose deep-sea tailings disposal (DSTD) as a cost-efficient option to manage byproducts of tailings from extracting metal ore.
For instance, PT Trimegah Bangun Persada (TBP) is building a smelter in North Maluku, where it operates a nickel mine laid out plans to dump 6 million tons of tailings into the ocean each year which would be the biggest DSTD projects in the world (Morse, 2020). If approved, the biggest challenge would be how to enforce it, as the World Bank refuses projects that do not uphold clean standard practices of DSTD in which Indonesia currently does not have yet.
How to Enter Indonesia’s Nickel Industry
To start a business in the Indonesian mining industry, some regulations are fully described in UU No. 3 Tahun 2020 which generally explains that mineral and coal resources are national assets, therefore their management is under the control of the central government. However, the regions will still receive benefits with greater hope. The role of local government will be further regulated in a government regulation (PP) which will soon be drafted.
What are the requirements to start this business?
There are several licenses a company must have to operate a business in this industry. Because the nickel commodity is under the auspices of the Minister of Energy and Mineral Resources, there are specific regulations that need more attention.
In UU No. 25 Tahun 2018, there are explanations of the permits a company needs to work in this industry:
- Mining Business License (IUP).
- Exploration Mining Business Permit (IUP Exploration). Business license that is granted to carry out the stages of a general investigation, exploration and feasibility study activities.
- Special Exploration Mining Business Permit (Exploration IUPK). A business license granted to carry out the stages of activities of general investigation, exploration, and feasibility study in a special mining business permit area.
- Production Operation Mining Business License (Production Operation IUP). A business license issued after the completion of an Exploration IUP to carry out the stages of production operation activities.
- Production Operation Special Mining Business License (Production Operation IUPK). A business license issued after the completion of an Exploration IUPK to carry out the stages of production operation activities.
- Production Operation Mining Business Permit specifically for processing and/or refining (Production Operation IUP specifically for processing and/or refining). A business license granted to purchase, transport, process, and refine including selling mineral or coal mining commodities resulting from its processing.
- Production Operation Mining Business License specifically for transportation and sale, (Production Operation IUP specifically for transportation and sale). A business license granted to a company to buy, transport, and sell mineral or coal mining commodities.
The need for this permit is adjusted to the needs of companies operating in the local area. For the procedures for registration, licensing, and reporting on mineral and coal mining business activities, it is well stated in the Minister of Energy and Mineral Resources of the Republic of Indonesia Regulation No. 7 of 2020.
Indonesia’s abundant natural resources make the mining industry have its own charm. Being a superior commodity, this industry also gets special attention from local governments to the central government. In conclusion, comprehensive attention is required to understand and overcome the obstacles to enter this industry.
Getting the right local partner is one of the solutions. BRIGHT Indonesia provides several services such as Business Registration and Establishment and Business Partnership Engagement that can bridge the needs of companies wishing to enter the Indonesian market by considering regulations and the right way of doing business. Our strategy consulting services domain focuses on supporting private sector clients with comprehensive and specialize development regarding the company’s needs.
This article is Co-Written with Rania Savira Attamimi