Indonesia’s Nickel Strategy Faces Environmental and Market Challenges

Indonesia's ambitious plan to dominate the global nickel market and influence the electric vehicle (EV) industry has raised significant environmental concerns and faces potential market shifts.

Indonesia's strategy, aimed at leveraging its vast nickel resources, involves a ban on nickel exports and encouraging multinational companies to process nickel domestically. This move, while potentially increasing Indonesia's control over the nickel supply chain, has led to substantial environmental harm, particularly in areas like Sulawesi.

The demand for nickel, primarily for use in EV batteries, has prompted extensive mining activities, leading to deforestation and pollution. The extraction process in Indonesia, mostly involving low-quality laterite ore, is energy-intensive and environmentally damaging. Critics highlight the ecological destruction and the potential release of hazardous chemicals like hexavalent chromium.

Compounding Indonesia's environmental risks is the rapid advancement in battery technology. The emergence of lithium iron phosphate (LFP) and hybrid lithium manganese iron phosphate (LMFP) batteries, which do not require nickel or cobalt, could significantly reduce the demand for nickel in the EV battery market. These technologies offer cost-effective and safer alternatives to traditional high-nickel batteries.

Market Implications

The global nickel market has already felt the impact of Indonesia's increased output, with nickel futures prices plummeting by 70% over the last two years. The oversupply situation is poised to worsen, with Indonesia's share of global nickel output projected to rise further, potentially reaching 75% in the next five years.