Nickel has long been a critical resource for modern life and, because of its importance for many technologies that are central to the energy transition, demand is only rising. The recent and increasing use of nickel in electric vehicles (EVs), expected to reach 30% of total nickel consumption, tracks increases in production and sales of electronic vehicles (EVs) in the US and elsewhere. Though the US was an early leader in EVs, it has been falling behind China and Europein recent years. Expanding its access to nickel could help the American EV market take back some of its market share and support the US’s broad and growing array of limited and zero-emissions policies.
Recognizing the growing importance of nickel, Indonesia, which currently has the world’s largest nickel reserves, has been working to foster and protect its growing nickel industries. Starting by prohibiting the export of low grade nickel, recent regulations have focused on building a domestic nickel smelting industry and creating more value before the nickel leaves Indonesia. These policies will help Indonesia retain more of the profits from the global nickel trade and lead to Indonesia becoming a major seller of high grade, Class 1 nickel (used in EV batteries). These policies have been working and there has been a surge in new refinery projects in Indonesia.
Some American actors have been making moves towards extracting more nickel from Indonesia, but nothing is set in stone yet. Most publicly, Tesla expressed interest in accessing Indonesian nickel for its EV batteries, but no progress towards a deal has been reported. A major sticking point in Tesla’s proposal, which aimed to purchase unrefined nickel ore, was Indonesia’s firm commitment to keeping refining processes in Indonesia.
International investors have recognized Indonesia’s hardline stance on developing its domestic capabilities and turned their attention to Indonesian nickel refining, with multiple Chinese companies already investing. Such projects help international investors capture some of the significant value added through the refining process, as well as to secure access to the final, refined product in an increasingly competitive market for high grade nickel.
The US currently gets most of its nickel from Canada, Norway, Australia, and Finland, suppliers which have, historically, met American demand. For the moment, neither the US itself nor American companies have any investment partnerships with Indonesian nickel producers. Additionally, the cost and regulatory complexity of transporting the chemicals needed for the refining processes across the Pacific Ocean provides some economic disincentive for the US to invest in Indonesia – a barrier Chinese investors don’t face.
However, as the need for nickel continues to rise, American companies will need to look to Indonesia and, it is increasingly clear, cede to Indonesia’s terms on extraction and investment. Because of Indonesia’s increasingly strict regulations of nickel ore export, it will soon be critical to have a foothold in the country to be able to capture refining value and retain access to a sufficient supply of nickel to meet ever-growing American demand.