Nickel downstream from Indonesia is one of the most debated industrial policies in the world today. With solid support from Tsingshan Holding Group and Jiangsu Delong Nickel Industry Co Ltd, two major Chinese steel manufacturers, the Indonesian government has continued an ambitious Nickel industrial strategy, often creating it as a step towards leadership of batteries EV.
The nickel treatment of Indonesia uses the abundant nickel reserves of low grade nickel to produce two main products: the nickel pig fon (NPI) and ferronickel, which are mainly used for stainless steel and precipitate of Mixed hydroxide (MHP), an essential ingredient in EV batteries.
Despite Indonesia’s thrust for EV, NPI and Ferronickel battery production represent almost 80% of its nickel treatment, while the MHP represents less than 20%. As a result, only a small fraction of the nickel transformed into Indonesia supports the EV batteries.
The paradox is that despite massive government incentives for the treatment of nickel, most transformed NPIs, ferronickel and MHP are exported to China rather than providing national industrialization. This raises the question: are industrial policies based on Indonesia nickel – are they formulated as a means of adding value by promoting the manufacture of EV batteries – really relevant, or do they represent a lag of policies?
To answer this question, the article is structured in three key segments. First, he analyzes government incentives in the nickel sector and maintains that they are useless and expensive for Indonesia. Second, he explores who are the main beneficiaries of Indonesia’s industrial nickel industrial strategy. Finally, it assesses the broader implications of these dynamics for the industrial strategy of Indonesia.
Unnecessary incentives
The Indonesian government has introduced three key incentives for nickel -based transformation: holidays, low prices on nickel ore and energy grants.
The tax daily day of transformation companies in nickel can last from 15 to 20 years, allowing the main investors such as the Chinese group Tsingshan, which has invested nearly $ 10 billion in Indonesia since 2015, to benefit from 20 years of exemptions from exemptions ‘income tax.
However, budgetary incentives are not the main engines of Chinese investment in the Indonesian Nickel sector. Two key factors make Indonesia attractive: the country’s ban on the export of ore and its prices for subsidized interior coal.
The prohibition of 2020 ore exports has considerably increased the world prices for nickel ore, because Indonesia controls 42% of world nickel reserves. While Indonesia previously imposed partial export restrictions, the 2020 ban marked a complete judgment. Although this policy has increased world prices in nickel, the Indonesian government regulates the prices of indoor nickel ore, which maintains them much lower than international prices. This encourages companies to establish treatment facilities in Indonesia, because the costs of raw materials are much cheaper.
In addition, Indonesia’s energy policy further reduces costs for nickel processing companies. Given that almost 70% of Indonesia electric power plants operate on coal, the government applies an internal market obligation (DMO), forcing coal producers to sell 25% of their production at national level at regulated prices . By comparison, in 2023, following the COVVI-19 pandemic, the price of world coal reached $ 350 / ton, while the DMO price of Indonesia was capped at $ 75 / ton. In normal situations, DMO prices are 25% to 30% lower than world market prices.
The treatment of nickel is based on the technology of high -energy furnaces, the power plants with coal providing electricity. Consequently, Chinese transformation companies into nickel into Indonesia benefit both from the drop in ore prices and the drop in energy costs, considerably reducing their operational expenses and increasing their profitability.
Are these incentives really needed? Indonesian nickel ore is a low grade laterite nickel ore, containing less than 1.8% nickel. This means that the treatment of 100 kilograms of ore gives only 1.8 kilogram of NPI; Some cobalt and other by-products are extracted, but the majority become waste. Given these conditions, the location of treatment facilities near nickel mines, rather than in another country, is already a profitable means of minimizing logistical expenses.
Obviously, not all current incentives are necessary. A banker based in Jakarta whom I interviewed explained: “The partial ban on nickel ore before 2020 (where ore export permits have been granted to companies that progress on the development of foundries) and securing of Permitted in industrial parks were in fact sufficient for nickel processing companies to invest in Indonesia. “”
Under the current policy, Indonesia has brought the cost of the lost tax fees of nickel ore exports due to the ban on exports, not to mention the tax days offered to processors. Meanwhile, his minors, mainly belonging to Indonesians because of the nationalist approach to the country of mining property, are forced to sell their ore at low prices regulated by the government. The paradox is that this nationalism only applies to mining, and not to treatment, where Chinese companies dominate.
Due to non -competitive pricing, Indonesian minors are little encouraged to explore or open new mines. Surprisingly, despite 42% of world nickel reserves, Indonesia since last year is important to the Philippines nickel ore. The very incentives benefiting from Chinese processing companies have become dissuasive for Indonesian minors, undergoing long -term sustainability of the sector.
Who are the beneficiaries?
Incitations of the Indonesian government have led to artificially low prices for the NPI and the MHP transmitted, which makes Indonesian treatment in nickel among the cheapest in the world. Although this benefits the processors, the largest winners are the Chinese factories, where most exports go. As mentioned, NPI and Ferronickel are crucial for steel production, while the MHP is the key for EV batteries.
Nickel remains the main industrial priority of the government, but budgetary constraints limit support to technology -oriented sectors, such as the production of EV batteries and domestic steel manufacturing.
Despite the high pressure from the government for the treatment of added nickel, real progress is lacking. The investment of $ 1 billion by byd in an EV assembly in Indonesia, which is based on LFP batteries (Lithium Iron Phosphate) – a non -nickel alternative which emerges as a viable alternative to EV batteries based on nickel – directly contradicts the EV strategy of the government’s nickel of the government of the government, to increase doubts about its effectiveness.
China and global manufacturers of electric vehicles perceive risks in Nickel -based EV batteries, mainly due to the rapid expansion of production and use of LFP battery. This change raises concerns, in particular taking into account the high investment costs of MHP production, which generally vary between $ 1.5 billion and $ 2 billion.
In June of last year, a consortium of Eramet, a French mining company, and BASF, a German chemical company, canceled its planned investment in Weda Bay, an industrial park in eastern Indonesia managed by the Tsingshan group. A source from the Indonesian government of Jakarta said: “One of the reasons is that the two companies see an excess offer of MHP factories, while the potential of demand is weakening due to the rise of LFP batteries.”
China will wait and evaluate the potential of the MHP against the LFP while continuing to prioritize the NPI and the ironickel in Indonesia, which remains much more lucrative for its steel industry.
What is the next step for Indonesia?
Nickel -based electric vehicles and the vast nickel resources of Indonesia always have potential, but the advantages largely favor Chinese investors, who, like other investors, strategically maximize the advantages they receive from government incentives . The question does not reside in China but in the political orientation of Indonesia – that its tax and non -tax incentives really support industrialization or reflect poorly aligned priorities.
Indonesia could learn from Vietnam, a country of resources that has managed to develop technology -oriented industries. Vinfast, the Vietnam manufacturer of Vietnam, has acquired global recognition, and Xanh SM Green, a Vietnamese taxi company, even launched operations in Jakarta using Vinfast EVS – A clear sign of the effective strategy of Vietnam Technology . The simple fact of having large nickel reserves does not guarantee success in the production of EV batteries, whether based on nickel or LFP, because these industries require distinct expertise and political frameworks.