Chinese companies are changing a once cumbersome refining process to find new uses for Indonesia's huge nickel reserves.
Across Indonesia, new factories have recently opened to produce nickel for use in electric vehicle batteries. Five years ago, there were no factories here.
The island nation has some of the world’s largest nickel reserves. However, Indonesia’s nickel is found in laterite ore, which is difficult to process for use in electric vehicles. For decades, Indonesian nickel has been used only to make stainless steel.
Analysts say Chinese companies have made a breakthrough, tweaking a once cumbersome refining process to unlock Indonesia’s vast reserves to supply the electric vehicle industry, which desperately needs nickel.
A nickel production facility in Indonesia. Photo: WSJ
The technology they used was called HPAL – high-pressure acid extraction. It has been around for decades, but it was considered cumbersome and cumbersome. HPAL requires high temperatures and pressures, which makes the equipment prone to breakdown and requires frequent repairs. Previous projects in Australia, New Caledonia and elsewhere have been delayed and over budget because of the technology.
A Chinese-run plant in Papua New Guinea was no exception at first. But China ENFI Engineering, the company that designed the plant, made several modifications and fixed the problems one by one. This stabilized the plant and created new processes to operate without major equipment failures, mining industry analysts say.
Other Chinese companies have followed suit, in part by bringing in skilled technical staff from Papua New Guinea to Indonesia. “It’s about their ability to transfer skills and knowledge,” Martin Vydra, chief strategy officer at Nickel 28, which owns a stake in the Papua New Guinea plant, told the WSJ.
One of the beneficiaries is Lygend Resources & Technology (China). In 2018, the company partnered with mining company Harita Group (Indonesia) to build the first HPAL plant there, specializing in supplying raw materials for electric vehicles. They have partnered with ENFI.
ENFI said on its website in April that its HPAL technology success had been transferred to other Chinese companies. “With these improvements, large-scale processing of low-grade laterite ores has become feasible. Chinese companies also have better access to resources,” ENFI said.
Workers at a Harita nickel plant. Photo: WSJ
This is giving China an advantage in the global race to dominate minerals needed for the energy transition, and it is also a blow to US efforts to help US companies reduce their dependence on China.
The Biden administration is pushing to diversify the energy supply chain, but when it comes to nickel, Chinese companies are increasingly tightening their grip.
Over the past few years, Chinese companies have opened at least three centralized processing plants supplying raw materials for electric vehicles in Indonesia. More are under construction.
One plant attracted investment from Ford Motor earlier this year. Another was built by South Korean steel giant Posco. Both have Chinese participation.
HPAL is expensive. Yet Chinese companies are increasing their bets on the technology. They believe that nickel prices will remain high. And as long as ore prices remain as cheap as they are, HPAL is commercially viable.
As of mid-December 2022, Chinese companies had invested $3.2 billion in nickel mining in Indonesia’s Sulawesi and Halmahera islands, a total of $14.2 billion over the past 10 years—enough to secure nickel supplies for the next decade. BloombergNEF predicts that Chinese companies will dominate the supply chain for at least the next five years.
According to the British research firm CRU, in 2017, Indonesia was only a small supplier of nickel for electric vehicle batteries. But now, they are the leading supplier. Data from the US Geological Survey also shows that in 2021, Indonesia accounted for 22% of nickel reserves and supplied 37% of the world's nickel. China's reserves were only about 5%.
For European carmakers, Indonesian nickel provides a much-needed steady supply. But in a volatile geopolitical environment, this supply has its downsides.
Under the Inflation Reduction Act passed last year in the US, electric vehicles will be subsidised if they meet country of origin requirements, which means where and by whom the nickel is mined also matters.
To qualify for subsidies, electric vehicle batteries need to use large amounts of minerals from the United States or countries with which the United States has a free trade agreement. Indonesia does not meet this requirement. The deep involvement of Chinese companies in Indonesian nickel mining will also complicate the issue.
But companies outside China are increasingly cautious in the sector. For a decade, the Indonesian subsidiary of Brazilian mining giant Vale has been developing a nickel project on the island of Sulawesi in partnership with Japan’s Sumitomo Metal Mining. Vale does the mining, while Sumitomo processes the ore at a plant using HPAL technology.
Still, a former Vale employee told the WSJ that the project has been plagued by problems ranging from where the waste goes to who is responsible if something goes wrong. Vale executives have grown increasingly frustrated with the slow pace of progress while the Chinese company continues to grow.
Sumitomo withdrew from the project in April 2022, citing delays in obtaining permits due to Covid-19. Two days later, Vale signed a cooperation agreement with Zhejiang Huayou Cobalt (China).
Ford announced its investment in the plant in March. “Like other global automakers, our supply chain includes the best technology, processes and resources from around the world, including China,” a Ford spokesperson said.
Ha Thu (according to WSJ)
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