Eramet says Indonesia limits nickel supplies to support locals

(Bloomberg) — Indonesia is squeezing nickel ore supplies to protect smaller local miners amid a prolonged slump in the battery metals market, according to Eramet SA.

The French miner, which operates the world’s largest nickel mine in Indonesia’s North Maluku province, was given a 29% smaller sales quota by the Asian country this year than expected, sending its shares tumbling in October.

Government restrictions aimed at protecting local miners from a global price collapse have also led to a shift in production towards higher-grade ore used to make stainless steel. That has reduced local supplies of battery-grade nickel ore, forcing local smelters – crucial to Indonesia’s ambitions to become a major player in electric vehicles – to turn to more expensive imports.

“They want to maintain good prices for ore in the market,” Eramet Indonesia CEO Jerome Baudelet said in an interview in Jakarta on Thursday. “They want to protect the small local miners.”

Nickel, used to make stainless steel and electric vehicle batteries, has suffered a two-year slump due to weak demand and strong supplies from Indonesia. That has forced some producers in other countries to shut down completely and has also put pressure on smelters in Southeast Asian countries, which are already facing high ore prices due to shortages.

Indonesia now accounts for more than half of global nickel production, after an export ban led to a smelter construction boom, largely driven by Chinese companies. On the mining side, production is highly fragmented, between a large number of small local companies and a handful of large international mining companies such as Eramet and Vale SA.

Baudelet said that due to sales restrictions, miners are prioritizing sales of higher-grade ore typically used in stainless steel production. This comes at the expense of a less abundant form called limonite, which is typically converted into battery-grade nickel in high-pressure acid leach facilities.

Baudelet said the factories are crucial to Indonesia’s ambitions to become a major player in electric vehicles, but they are forced to import large chunks of the ore at extremely high costs.

Eramet can apply for higher sales quotas next year, which could ease tight conditions in the ore market. This may become more urgent as the country continues to shift processing power online.

Much depends on the country’s new government’s attitude towards the nickel industry. President Prabowo Subianto, who took office last month, has pledged to continue his predecessor’s policy of bringing the processing of minerals such as nickel onshore.

The former general recently concluded a visit to the United States that included a meeting with President Joe Biden and a call with President-elect Donald Trump. Indonesia has been pushing for U.S. production of electric vehicles containing nickel to qualify for subsidies under the Inflation Reduction Act.

It remains to be seen whether the Trump administration will be more willing to strike a deal on this front, especially given his repeated stated desire to defund much of the IRA. But Beaudelet said Southeast Asia’s growing dominance of the nickel market could eventually force the United States to take action.

“Look at Indonesia, in the next five, 10 years, it will account for 70% of world production,” he said. “If you don’t want to source from Indonesia, it’s going to be a challenge for you to get competitive nickel.”

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