Indonesia, the world’s largest producer of nickel, has introduced measures to restrict exports of nickel ore in order to protect its smaller local miners amid a global slump in nickel prices. This decision, according to French mining company Eramet, has significantly affected the global nickel supply chain, particularly for battery-grade nickel used in electric vehicle batteries. Eramet, which operates the world’s largest nickel mine in Indonesia’s North Maluku province, was impacted by the government’s decision to allocate a sales quota that was 29% lower than what the company had expected. As a result, Eramet saw a sharp decline in its share price in October 2024.
The Indonesian government’s decision to curb nickel ore sales was aimed at shielding local miners from the negative effects of the ongoing global price slump, which has lasted for nearly two years. During this period, nickel prices have struggled due to weak demand, particularly in the EV sector, which has yet to fully recover. The government’s actions also align with a broader strategy to protect smaller, local mining operations, which are an essential part of Indonesia’s mining landscape. However, these restrictions have also had unintended consequences, shifting production toward higher-grade ores that are used in the production of stainless steel, rather than the battery-grade nickel needed for electric vehicle batteries.
This shift in production focus has led to a reduction in the local supply of nickel ore suitable for battery production, which has put pressure on Indonesia's smelters. These smelters, which are crucial to the country’s ambitions of becoming a key player in the electric vehicle market, are now facing higher costs. With domestic supply of battery-grade nickel dwindling, smelters have been forced to turn to more expensive imports to meet the growing demand for EV batteries. Jerome Baudelet, CEO of Eramet Indonesia, commented that the government’s decision was driven by the desire to "maintain a good price for the ore on the market" while simultaneously "protecting the local small miners" from the volatility in global nickel prices.
Despite these challenges, the Indonesian government’s measures have led to a restructuring of the local mining industry. Indonesia, which now accounts for more than half of global nickel output, has seen a boom in smelter construction, largely driven by Chinese companies. The country's nickel industry, however, remains fragmented. While a few large international miners such as Eramet and Vale hold substantial shares of the market, the vast majority of nickel mining operations are small, local enterprises that struggle to compete in a globalized market dominated by a few key players.
The impact of these restrictions has been felt not only in Indonesia but across the global nickel market. The weak demand and oversupply of nickel, particularly in the stainless steel sector, have caused many producers in other countries to scale back or shut down operations altogether. This, coupled with rising ore prices in Indonesia due to the curbs on sales, has created a challenging environment for nickel smelters in Southeast Asia. These smelters are already grappling with high production costs, which have made it difficult to compete in an increasingly price-sensitive global market.
In response to the tight market conditions, Eramet has been forced to prioritize selling higher-grade nickel ore typically used for stainless steel production, at the expense of limonite, a lower-grade ore that is more commonly processed into battery-grade nickel. This shift has placed further pressure on the local battery-grade nickel market, which relies on high-pressure acid-leach facilities to process limonite into the high-quality nickel needed for EV batteries. These plants, which are central to Indonesia’s plans to become a major supplier of EV materials, now face high costs as they must import the necessary ore at premium prices.
Looking ahead, Eramet has the option to apply for a higher sales quota in the coming year. This could help alleviate some of the current tightness in the ore market and provide a much-needed boost to the country’s processing capacity. As Indonesia continues to expand its smelting and processing infrastructure, the ability to access more nickel ore will be crucial for supporting the growing demand for battery-grade materials needed for electric vehicles. For now, however, the market remains under strain, with Indonesian producers facing the dual challenge of balancing local interests with the needs of global markets.
Indonesia’s role in the global nickel market, particularly for EV battery production, continues to evolve. The country's decisions regarding nickel exports and mining quotas will have lasting implications not only for local miners but also for the broader global supply chain. As demand for nickel in electric vehicles grows, the ability to strike a balance between protecting local industry and meeting the needs of international markets will be key to Indonesia’s future as a global leader in nickel production.
