The Indonesian government has decided to re-impose a ban on the export of unprocessed nickel ores earlier than originally scheduled. Indonesia had relaxed its previous policy of forbidding the export of unprocessed ores in early 2017 (a policy that had been implemented in 2014). That policy relaxation allowed the export of nickel ores grading below 1.7%, for a period of five years, subject to conditions, meaning that the ban should have been re-imposed in January 2022. The government, however, has decided to bring this deadline forward and halt the ban of all nickel ores from January 2020, in order to encourage further domestic processing of those nickel ores.
In 2014, Indonesia’s refined nickel production stood at 24kt, most of which was ferronickel produced by local company PT Antam. In 2018, however, the country produced 291kt of refined nickel (of which 26kt was produced by PT Antam). The balance was produced by nickel pig iron (NPI) capacity that was built in the country (mainly by the Chinese) in order to access ores that were no longer available to the export market. On that basis, the Indonesian government’s decision to ban exports of ore had the desired effect: that of encouraging the domestic processing of ore.
Because the relaxation of this ban in 2017 was conditional on further investment in new capacity, investment in Indonesian refining continued following the policy relaxation. Chinese group Tsingshan is in the process of increasing its NPI capacity in Morowali to 435kt, for example. Although NPI producers in China were able to process the sub-1.7% Ni grade ores from Indonesia into NPI, those grades of ores are typically better suited to being hydro-metallurgically processed into intermediate products that are suitable for the battery industry. Because the use of electric vehicles is expected to surge in the next decade, this will require a significant investment in the production of nickel-containing battery cathode material. Indonesia’s decision to re-impose the ban on low-grade nickel ore exports can, therefore, be seen as an attempt to spur investment in new capacity to produce battery-grade material, in the same way that it did in encouraging pyrometallurgical capacity producing NPI for the stainless steel industry.
With the ban on low-grade nickel ore exports to be re-imposed from January 2020, Chinese NPI producers are likely to find it more difficult to source feedstock for their plants. This is likely to lead to a decline in Chinese NPI production, but with the investments being made in Indonesian NPI capacity, NPI production there should rise. Moreover, the early imposition of the ban on low-grade ores should also encourage more investment in capacity, be it NPI or battery-grade intermediates.
The risk to this latest policy change, however, is that potential investors think twice about investing in Indonesia altogether and instead look to investing in capacity in other countries where possible. The government’s latest policy U-turn represents the third major change in export policy since 2014.