Trump Expected to Tighten Restrictions on Chinese Nickel Under IRA
Industry sources indicate that the incoming Trump US administration is planning to adopt a stricter approach toward allowing Chinese-owned or operated raw materials, such as nickel, to qualify for credits under the Inflation Reduction Act (IRA). Washington insiders told Fastmarkets that one of the new administration's early actions will likely be to tighten the Foreign Entity of Concern (FEOC) rules, making it even harder for electric vehicles (EVs) to qualify for IRA-related credits.
The existing rules have already made compliance challenging. Nearly a year ago, the US Department of Treasury released its definition of a FEOC, stating that companies with more than 25% ownership or control by entities such as China, Russia, North Korea, or Iran would not be eligible for tax credits. This decision excluded a substantial portion of nickel, especially given Chinese involvement in nickel production in Indonesia.
Despite these rules, there have been allegations that some nickel has entered the US market falsely claiming to be IRA-compliant. Washington has reportedly seen increased activity from lobbyists and industry experts warning about such circumvention schemes, prompting a potential tightening of the FEOC regulations.
This stricter stance comes as several Western companies, including Ford Motor Company and General Motors, remain actively involved in joint ventures with Chinese firms in Indonesia. Ford, alongside Vale, has a joint venture with Huayou Cobalt to develop a nickel plant by 2026, while General Motors is partnered with SAIC Motor Corp and Wuling Motors on EV production in Indonesia.
Concerns about the use of Chinese-sourced nickel in US EVs have been further heightened by Ford's decision to use battery cell technology from China's Contemporary Amperex Technology Co., Limited (CATL) at a planned \$3.5 billion battery cell plant in Michigan, leading to some backlash domestically.
The heightened focus on IRA-compliant nickel comes at a time when global nickel prices have remained lackluster, limiting incentives for new production in compliant nations such as Australia and New Caledonia. Companies including BHP, Glencore, and First Quantum have had to make difficult choices about their projects in light of the unfavorable price environment, even as London Metal Exchange nickel prices have seen recent gains.
With the Biden administration expected to favor projects like Talon Metals' Tamarack and Eagle Mines' extension project, securing non-FEOC nickel will be critical for automakers and battery manufacturers. Fastmarkets estimates that only 8-9% of world nickel production, 4% of intermediate supply, and around 12-12.5% of refined supply will be IRA-compliant from 2025 to 2027, slightly increasing by 2034.
The shift towards a zero-tolerance policy on FEOC materials is expected to accelerate the demand for IRA-compliant sources and heighten the pressure on the US and its allies to secure reliable supply chains. Western nickel projects in Canada, Brazil, and Australia are likely to see increased interest as automakers look to lock in compliant material.
