Indonesia defends its curbs on nickel ore exports amid EU claim of breach in international trade

JAKARTA – Indonesia has stepped up its defence of its nickel ore export curbs the European Union has protested against, asserting its right to enhance value addition, boost its economy, and create job opportunities by climbing the value chain.

Indonesia claims it is doing what is necessary to develop its electric vehicle (EV) ecosystem, while the EU claims the nation rich in natural resources has breached rules by restricting international trade.

South-east Asia’s largest economy, which was the world’s top exporter of nickel ore, introduced the ban on Jan 1, 2020.

Nickel is a key component in making efficient lithium-ion batteries, which are widely used in EVs, but is also crucial for a more traditional industry – stainless steel manufacture. Indonesia’s 2020 ban caused global nickel prices to soar, hitting the EU hard.

Indonesia’s “downstreaming” policy mandates that all the raw nickel extracted in the country must be processed domestically, enabling higher value-added export revenues and spurring the growth of the mineral smelting industry.

Nickel smelting facilities have sprouted in Indonesia in recent years, and many were built by investors from China, the world’s largest auto exporter and EV battery maker today. There are 15 nickel smelters today, from just a few several years ago.

Indonesia holds nearly a quarter of global reserves of nickel.

While the World Trade Organisation (WTO) in October 2022 ruled against the nickel ore export restrictions, Indonesia appealed in November 2022 and was allowed to uphold the ban, pending a decision. The ban is still in effect.

On Monday, President Joko Widodo argued that Indonesia’s downstreaming policy will play a large part in the nation’s chance to become a high-income country by 2045.

Nickel-related annual export proceeds have now jumped to US$33.8 billion (S$45.4 billion) from a mere US$2.1 billion before the downstreaming policy, he said.

In Central Sulawesi, one of several nickel-producing regions in Indonesia, nickel-related jobs have skyrocketed to 71,500 now, from 1,800, because of the downstreaming policy. Over in North Maluku, such jobs stand at 45,600, compared with 500 previously, the President added.

Both provinces boast a recently built integrated industrial park to process nickel ores, and domestic processing of this mineral is expected to fuel the fast-growing EV race globally.

“Hence, the downstreaming policy must continue… and must be expanded to all minerals and to the plantation, agriculture and fishery sectors. This is about job creation,” Mr Widodo, who ends his second term in office on Oct 20, 2024, told a forum organised by the Indonesian Employers Association.

Indonesia issued a ban on exports of bauxite in June 2023 and plans to continue or expand its export bans for other minerals, including copper.

In late June, the International Monetary Fund (IMF) weighed in, recommending that Indonesia phase out mineral export restrictions and refrain from expanding the policy to other minerals.

President Widodo earlier this week dispatched a delegation to the United States to explain Indonesia’s position to the IMF.

Mr Jodi Mahardi, spokesman for the Coordinating Minister for Maritime Affairs and Investment, told The Straits Times before the US trip that Indonesia does not intend to unilaterally monopolise all downstreaming processes.

“The initial stages will be carried out in Indonesia, but subsequent stages can still be conducted in other countries, mutually supporting their industries, in a spirit of beneficial global cooperation,” he said, adding that Indonesia is also currently building a recycling plant for future used-up batteries.

The country’s fast-developing EV ecosystem in recent years has attracted global manufacturers to set up facilities. Besides its abundance of nickel and being a gateway to the fast-rising South-east Asian market, Indonesia has also lured private-sector investment with incentives such as 20-year tax holidays.

South Korea’s LG Chem is investing billions of dollars in EV supply chains in the Batang Industrial Park in Central Java.

Separately, China’s CATL, the world’s largest EV battery maker, will later in 2023 start building a facility in Buli, North Maluku province, that will have smelters to produce precursors and cathodes.

US’ Tesla and China’s BYD Automobile, the world’s two largest makers of EV, are also considering setting foot in Indonesia.

But Indonesia faces stiff competition from developed nations.

The US Inflation Reduction Act (IRA), passed by Congress in 2022 – which includes incentives for EVs with a minimum benchmark of 40 per cent of the battery’s materials coming from the US or its free-trade partners – has prompted some companies that were planning to set up facilities in Indonesia to direct some of the planned capacity expansion to the US.

“The IRA obviously affected our plan. We have to scrap some of the lines of production we had planned to build in Indonesia and ship to the US,” an EV investor told ST on condition of anonymity.

In May, Canada significantly increased a C$1 billion (S$1 billion) aid package for at least one new EV battery plant.

In March, the EU announced its Net-Zero Industry Act, which includes a target of manufacturing 90 per cent of its annual EV battery needs locally.

France, Spain and Germany also introduced various tax credits and aid packages for EV investments in their respective countries.

These moves have spurred more investment in Indonesia’s nickel mining and smelting industries. Recent announcements include a US$2.6 billion refinery in North Maluku by German chemical maker BASF and French miner Eramet, which will produce a nickel compound used in EV batteries.

While far from being a large direct importer of Indonesia’s nickel ore or processed nickel, the €125 billion (S$183 billion) EU steel industry claimed that cheaper stainless steel imports hurt domestic manufacturers.

When Indonesia announced its nickel ore ban in 2020, the EU petitioned the WTO, whose rules prohibit member countries – including Indonesia – from using quotas, import or export licences or other measures to restrict trade, including of raw materials.

The EU claims it suffered a loss of €1.75 billion since Indonesia’s appeal.

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