Nickel market to rely on Indonesian supply as new tech opens up production

Indonesia is set to become the dominant source of global nickel within a decade as next-generation processing technology allows the country's low-grade nickel to join the battery supply chain, according to analysts and S&P Global Market Intelligence data.

Mined nickel production in Indonesia is forecast to reach 2.1 million metric tons in 2024, more than half of the estimated global production for the year and more than double the amount the country produced in 2020, according to research from S&P Global Commodity Insights. Mined nickel supply is forecast to go into a deficit as prices reach $28,000 per metric ton.

The country has the largest nickel reserves and resources in the world, containing 66.4 million metric tons of nickel, and has historically produced class 2 nickel products such as nickel pig iron for use in the stainless steel industry. Now, with an electric vehicle boom increasing demand for battery-grade nickel, producers have been finding new ways to turn the country's mineral resources into battery precursor materials.

New applications of old technologies have been enabling producers to turn the country's lower-grade laterite ores into intermediate products that can be used to make battery materials. This refining shortcut has attracted a wave of investments into the country.

"No question that Indonesia will provide the vast majority of newly mined nickel over the next decade, and most of it will remain in Chinese hands for onward processing into chemicals for the rechargeable battery sector," Adrian Gardner, principal analyst of nickel markets at Wood Mackenzie, told S&P Global Commodity Insights.

Shifting market dynamics

The green technologies sector, including rechargeable EV batteries, is expected to account for most of the growth in demand for nickel, reaching 21% of global demand in 2025 and 34% in 2030, according to an April 2022 forecast by Goldman Sachs.

The EV battery market has historically relied on class 1 nickel products, mostly derived from sulfide ore, to produce battery-grade materials. However, "we are finding fewer large-scale sulfide resources" while the market has increased investments in laterite ores, Caspar Rawles, chief data officer at Benchmark Mineral Intelligence, told Commodity Insights.

Indonesia banned the export of unprocessed nickel ore effective from January 2020, and China-based Tsingshan Holding Group Co. Ltd. radically changed the market in March 2021 by announcing it would produce nickel matte, an intermediate product, from nickel pig iron, a class 2 product.

What followed was a wave of investments in Indonesia exceeding $30 billion.

"Indonesia is globally the number one in terms of both reserves and mining of nickel, one of the core materials needed for battery manufacturing," the press office for LG Energy Solution Ltd., a South Korea-based battery maker, told Commodity Insights. "LG consortium's project is aimed at establishing a complete value chain, ranging from mining of the materials to the actual battery cell manufacturing."

LG Energy entered a memorandum of understanding with Indonesia in January 2020 for a $9.8 billion investment in electric vehicle batteries, and broke ground in June 2022 for its planned nickel processing facilities.

Producers plan to use a refining method known as the rotary kiln-electric furnace process, which is used by Tsingshan, and another known as high pressure acid leaching, to produce intermediary products that are just one step away from the highly coveted nickel sulfate used in EV batteries.

"Everyone is looking for class 1 [nickel] because that's the way they think that you can make sulfate. But that's 10 years out of date now," said Gardner.

Nearly one-third of all of Indonesia's mined nickel output will be turned into intermediary products by 2027, according to data from Wood Mackenzie.

Risky reliance

Reliance on Indonesian nickel has raised several environmental concerns, including high carbon emissions, Ralph Grimble, operations director at market intelligence group SFA (Oxford) and Matthew Piggott, head of nonferrous metals research at Skarn Associates told Commodity Insights. Many of the facilities will be coal-fired and will require more energy than class 1 products, Skarn Associates said in a March report, as did other experts.

Although only a portion of Indonesia's nickel production is going toward battery production, the environmental impact of nickel mining and processing "is a concern for sustainability focused companies," said Benchmark's Rawles. "In addition, much of the new capacity is being added by Chinese-owned companies, and with the current drive to reduce dependence on China for critical minerals, particularly in the US, this in itself poses a potential issue for some companies or regions."

Class 1 fading

Investment in new nickel sulfide mines, commonly used for class 1 products, stagnated due to a period of lower nickel prices in the mid- to late 2010s, Grimble said. Several mines closed down temporarily with the exception of Russia-based PJSC MMC Norilsk Nickel, which is undertaking an expansion.

Wood Mackenzie's Gardner expects some revival of class 1 nickel through 2025, but its necessity has faded as technological advancements and high nickel prices make investments in refining the world's abundant reserves of lower-grade nickel both possible and profitable, analysts said.

"Indonesia has a large ore resource and Chinese companies have already invested heavily in production there," Grimble said.

The decline in class 1 nickel's share of global nickel production in not a constraint to the market, Clare Richardson, communications director at industry group Nickel Institute, told Commodity Insights.

"There are several routes to attain battery grade nickel such as the recent nickel pig iron to matte conversion route," Richardson said.

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.