China built Indonesia’s nickel boom but may bust it

China financed and built Indonesia's nickel industry, transforming the country into the world’s largest producer in the space of a decade.

- Andy Home

This Feb 11, 2023 aerial photo shows excavators and trucks at a nickel mine in Pomalaa in southeast Sulawesi, Indonesia. AFP

(AFP)

But now China is not so sure it needs all that nickel. Chinese electric vehicle manufacturers are pivoting away from nickel-chemistry batteries.

Ever more of what Indonesia digs out of the ground is destined not for an EV battery plant but rather a London Metal Exchange warehouse.

Global exchange inventories of refined nickel have ballooned from 54,000 metric tonnes in January 2023 to 366,000 tonnes, equivalent to around 10% of global usage last year.

The weight of surplus has tamed nickel’s wildness, which peaked with the suspension of LME trading in 2022. Prices have spent most of this year churning at rock-bottom levels.

Indonesia's nickel sector is still growing as the country pursues its ambition of becoming an EV powerhouse, but there is a very real risk ithas bet too much on a battery metal that its biggest customer is growing cold on.

“Please mine more nickel,’ was Elon Musk’s rallying call to the mining industry back in 2020. The head of Tesla was concerned there wouldn't be enough of the stuffto meet what was expected to be explosive demand growth from the EV battery sector.

Indonesia and its Chinese operators duly obliged.

The country's mined production surged from 780,000 tonnes in 2020 to 2.3 million tonnes in 2024. Its share of global supply rose from 30% to 70% over the same period.

The first wave of Chinese investment in Indonesia's giant nickel reserves was all about stainless steel, still the largest consuming sector for nickel.

Huge amounts of ore were shipped to China, and then, when Indonesia banned the export of unprocessed ore in 2020, the trade shifted to nickel pig iron.