The Nickel -based industrial paradox: Indonesian sources, Chinese profit

The nickel of Indonesia downstream is one of the most debated industrial policy measures in the world today. With a strong support of Tsingshan Holding Group and Jiangsu Delong Nickel Industry Co LtdTwo large Chinese steel manufacturers, the Indonesian government, has followed an ambitious nickel -based industrial strategy, Often frame as a step in the direction of EV -battery leadership.

The nickel processing of Indonesia uses the abundant reserves of the Land Nikkel land to produce two main products: nickel crap (NPI) and Ferronickel, which are mainly used for stainless steel and mixed hydroxide precipitation (MHP), an essential ingredient in EV Batteries (MHP), an essential ingredient in EV batteries. .

Despite the push of Indonesia for EV -battery production, NPI and Ferronickel are almost 80 percent of its nickel processingWhile MHP is good for less than 20 percent. As a result, only a small part of the processed nickel of Indonesia EV batteries supports.

The Paradox is that despite massive government stimuli for nickel processing, most processed NPI, Ferronickel and MHP are exported to China instead of supplying domestic industrialization. This raises the question: are the nickel-based industrial policy of Indonesia list as a way to add value by promoting EV battery-host-host, or are they representing a policy mismatch?

To answer this question, the article is structured in three important segments. Firstly, it analyzes the government stimuli in the nickel sector and claims that they are not necessary and expensive for Indonesia. Secondly, it investigates who the primary beneficiaries of the nickel -based industrial strategy of Indonesia are. Finally, it assesses the broader implications of this dynamic for the Indonesia industrial strategy.

Unnecessary stimuli

The Indonesian government has introduced three important stimuli for nickel -based processing: income tax holidays, low nickel prices and energy subsidies.

The tax holiday for nickel processing companies can take from 15 to 20 years, which means that large investors such as the Chinese Tsingshan Group, who has invested nearly $ 10 billion in Indonesia since 2015, benefit from 20 years of income tax exemptions.

However, tax incentives are not the primary motives of Chinese investments in the nickel sector in Indonesia. Two important factors make Indonesia attractive: the prohibition of the country on the export of ORS and the subsidized domestic coal prices.

The 2020 Ore export ban significantly increased global nickel prices, While Indonesia arranges 42 percent of the nickel reserves of the world. Although Indonesia has previously imposed partial export restrictions, the prohibition of 2020 meant a complete stopping. Although this policy has increased global nickel prizes, the Indonesian government arranges domestic nickel prices, making them much lower than international rates. This offers companies a strong incentive to set up processing facilities in Indonesia, because the raw material costs are considerably cheaper.

Moreover, the energy policy of Indonesia further reduces the costs for nickel processing companies. Since almost 70 percent of Indonesia power plants run on coal, the government maintains a domestic market obligation (DMO), Requires coal producers To sell 25 percent of their output in their own country at regulated prices. For comparison, in 2023, in the aftermath of the COVID-19 Pandemie, the global coal price reached $ 350/ton, while the DMO price of Indonesia was covered at $ 75/ton. In normal situations, the DMO prices are 25 percent to 30 percent lower than global market prices.

Nickel processing is based on energy-intensive oven technology, with coal -fired power plants that deliver electricity. As a result, Chinese nickel processing companies in Indonesia benefit from both lower ore prices and lower energy costs, so that their operational costs are considerably reduced and increasing their profitability.

Are these stimuli really needed? Indonesian nikkelerts is low -lateritite nikkelerts, with less than 1.8 percent nickel. This means that the processing of 100 kilograms of ores only yields 1.8 kilograms of NPI; Some cobalt and other by -products are extracted, but the majority are waste. In view of these conditions, locating processing facilities near Nikkelmijnen, instead of in another country, is already a cost -efficient means to minimize the logistics costs.

It is clear that not all current stimuli are needed. A banker established in Jakarta that I interviewed explained: “The partial ban on Nikkelerts before 2020 (where ERTSE-Export permits were granted to companies that made progress in smilter development) and securing reimbursements within industrial parks was actually sufficient for nickel processing companies To invest in Indonesia. “

According to current policy, Indonesia has supported the costs of lost tax royalties from the export of Nikkelerts because of the export ban, not to mention the tax holidays offered to processors. In the meantime, the miners, who are usually in Indonesian ownership because of the nationalist approach of the country for mining ownership, are forced to sell their ore at low government -regulated prices. The paradox is that this nationalism only applies to mining, not processing, where Chinese companies dominate.

As a result of non -competitive prices, Indonesian miners have little incentive to explore or open new mines. Shocking, despite the fact that 42 percent of the nickel reserves of the world held, Indonesia has imported Nikkelerts from the Philippines since last year. The incentives that benefit Chinese processing companies have become obstacles to Indonesian miners, who undermine the long -term sustainability.

Who are the beneficiaries?

The stimuli of the Indonesian government have led to artificially low prices for processed NPI and MHP, making the Indonesian nickel processing between the cheapest in the world. Although this processors benefits, the biggest winners are Chinese factories, where most exports go. As mentioned, NPI and Ferronickel are crucial for steel production, while MHP is the key for EV batteries.

Nikkel remains the best industrial priority of the government, but tax limitations limit support for technology-driven sectors, such as EV battery production and domestic steel production.

Despite the strong urge of the government to nickel processing with added value, the real progress is missing. Byd’s $ 1 billion Investment in an EV assembly in Indonesia, which depends on LFP batteries (lithium iron phosphate)-a non-Nickel alternative that pops up as a viable alternative to EV batteries based on Nikkel-IS directly in contradiction about its effectiveness.

China and global EV manufacturers take risks where in nickel-based EV batteries, mainly because of The rapid expansion of LFP Battery production and use. This shift calls for concern, in particular given the high investment costs of MHP production, which usually vary between $ 1.5 billion and $ 2 billion.

In June last year, a consortium of Eramet, a French mining company, and BASF, a German chemical company, Planned investment in Weda Bay are canceledAn industrial park in East Indonesia managed by Tsingshan Group. An Indonesian government source from Jakarta stated: “One of the reasons is that both companies see an oversupply from MHP factories, while the question potential weakened by the rise of LFP batteries.”

China will wait and judge the potential of MHP against LFP while he continues to prioritize NPI and Ferronickel in Indonesia, which remains much more lucrative for the steel industry.

What is the next step for Indonesia?

Nickel-based EVs and the enormous nickel sources of Indonesia still have potential, but the benefits are largely preferred to Chinese investors, who, like other investors, are the benefits that they receive strategic maximizing government stimuli. The issue does not lie with China, but in the policy direction of Indonesia or the tax and non-tax stimuli really support industrialization or reflect incorrectly aligned priorities.

Indonesia could learn from Vietnam, a country for resources that has successfully developed technology -driven industries. VinFast, the EV manufacturer of Vietnam, has received global recognition, and Xanh SMENA Vietnamese taxi company, even launched activities in Jakarta using Vinfast EV’s a clear sign of the effective technology-oriented strategy of Vietnam. Simply having large nickel reserves, guarantees a success in the production of EV battery, whether it concerns nickel-based or LFP, because these industries require clear expertise and policy frameworks.