Indonesia is exploring the creation of an OPEC-style cartel for nickel and other key battery metals, underscoring the geopolitical confidence of resource-rich nations needed to manufacture electric cars.
Bahlil Lahadalia, the country’s investment minister, said Jakarta was considering mechanisms similar to those used by OPEC, the group of 13 oil-producing nations, which could be used in the supply of metals that are at the heart of the energy transition.
“I see merit in creating Opec to manage the governance of oil trading to provide predictability for potential investors and consumers,” he said in an interview. “Indonesia is exploring the possibility of forming a similar governance structure with respect to the minerals we have, including nickel, cobalt and manganese.”
Indonesia is the world’s largest nickel producer, generating 38% of the world’s refined supply, according to consultancy CRU. It holds a quarter of the world’s reserves of the metal.
Asked if it had contacted other major nickel producers about the idea of a cartel, the Ministry of Investment said it was still in the process of formulating a structure it could come up with. .
Any attempt to form a cartel to control global nickel prices would be far from straightforward. Russia supplies a fifth of the high-purity nickel used in batteries, while Canada and Australia are also major producers. However, Indonesia is expected to be the biggest source of growth in the coming years.
One of the complications is that Indonesia relies on foreign companies such as China’s Tsingshan, the world’s largest stainless steel producer, and Brazil’s Vale to extract nickel. Among powerful OPEC countries, such as Saudi Arabia, oil production is dominated by state-owned companies.
Indonesia was an original member of OPEC, but suspended its membership due to concerns about the impact of high oil prices on its economy and the effect of the cartel’s production cuts on its public finances. Indonesia became a net oil importer in 2004.
The country’s capabilities to supply battery-grade nickel are also still nascent. Much of its output is lower purity material used in stainless steel, and additional processing facilities to turn it into battery material are required.
It has banned nickel ore exports since 2020 in a bid to develop a domestic processing industry. Jakarta is planning taxes on exports of intermediate nickel products, with the aim of encouraging the development of a complete supply chain of electric vehicles. This year saw the launch of the first two electric vehicles produced in Indonesia, by Hyundai in South Korea and Wuling Motors in China.
Lahadalia said the country “will not budge or flinch in terms of our policy”, even though the export ban has sparked a World Trade Organization dispute with the EU.
Despite Indonesia’s mineral wealth, its role in supplying nickel to Western automakers is threatened by large swaths of Chinese-owned and carbon-intensive production due to dependence on carbon. coal-fired electricity generation.
Government data shows that China doubled its investment in the country in the first half of 2022 to $3.6 billion, compared to the same period a year earlier, thanks to the construction of nickel smelters.
Frank Fannon, managing director of Fannon Global Advisors and former US undersecretary of state for energy resources, said an OPEC-style cartel for battery metals would “chill Western investment” in Indonesia’s nickel sector.
The “lithium triangle” of Chile, Argentina and Bolivia has already announced the formation of an OPEC-like group to control global supply and prices of battery metal.
Chilean Mines Minister Marcela Hernando recently downplayed this, telling the Financial Times that “our interest in working with neighboring countries has to do with knowledge management to help us collaborate on skills.”