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Indonesia’s bid for EV nickel supremacy is doomed to failure

Indonesia Morowali Industrial Park
Some 5,331 hectares of Indonesian tropical forest have been cut down, with 142,964 hectares allocated to 66 mining concessions - RIZA SALMAN/AFP via Getty Images

When Indonesia launched its bid to corner the world’s nickel market and gain a stranglehold on electric vehicles, it overlooked one crucial detail.

Battery technology is moving so fast that the world may not need the nickel after all. Indonesia is cutting down its rainforests and polluting the Coral Triangle for what looks increasingly like a commercial mirage.

Cheap and safe LFP batteries (lithium iron phosphate) are already so good that they have conquered 70pc of the EV mass market in China. They use neither nickel nor cobalt.

The latest twist is a hybrid using manganese as a cathode that leaps up the quality scale and radically alters the calculus of what minerals may be needed for the electrification of global road transport.

This new “LMFP” technology approaches the energy density and range of standard high-nickel batteries used in almost every EV sold in Europe and America, but at two thirds of the cost.

“I can walk into a showroom in Shanghai today and for roughly $50,000 I can buy a ZEEKR 001 that gets me 1,000 kms range and can be recharged in eight minutes,” said Ken Hoffman, head of battery materials at McKinsey.

None of this was on the radar screen when Tesla’s Elon Musk issued his plea for “more nickel” in July 2020, offering giant long-term contracts to any mining company that could meet the parabolic rise in demand expected by the late 2020s.

Indonesian President Joko Widodo
Indonesian president Joko Widodo’s ban on the export of nickel forced foreign business to operate in the country - LUONG THAI LINH/EPA-EFE

Indonesia’s leader Joko Widodo – “Jokowi” – was already a step ahead, but with an entirely different idea in mind, and a breathtaking disregard for the ecological damage. His objective was to gain hegemony of the world’s nickel supply and lock it up inside Indonesia with an export ban, forcing global multinationals to set up their processing industries inside the country, using Indonesian coal-power for good measure.

“This is our country’s business strategy, designed so we become a major hub for the electric vehicle industry,” he said three years ago.

He has succeeded. Chinese companies backed by Chinese state banks have poured money into mega-projects. The Koreans and Japanese have scrambled to keep up.

Jim Lennon from Macquarie said Indonesia’s share of global nickel output has jumped from 20pc to 55pc since the middle of the last decade. This oversupply has already crashed the market. Nickel futures have fallen by 70pc over the last two years. They are lower today than in 2004.

“We’ve seen an incredible increase in Indonesian supply, and it is only half way through. Within the next five years, based on all the investment plans, it could be as much as 75pc of global supply. It is a massive concentration in one country,” he said at the London Metals Exchange Week.

“Indonesia produced 1.5m tonnes of nickel last year. The planned capacity is 5m tonnes, which is way bigger than the entire market,” he said.

A tiny fishing village without electricity in eastern Sulawesi has been turned almost overnight into a tropical Dickensian hellscape, employing 70,000 people to operate a vast complex of coal-fired boilers, ash ponds, steel foundries, nickel smelters, and high-pressure acid leach cookers.

Nineteen workers were killed last month at the Morowali Industrial Estate when a nickel smelter exploded, the latest of a long series of fatalities.

Sulawesi is a unique biosphere of tropical rainforest. Nickel mining strips large areas of forested hills to extract ore near the surface, sometimes leaking ultra-toxic hexavalent chromium that flows downstream with the rains.

Henry Sanderson writes in Volt Rush that Indonesian ore is low quality laterite with a nickel content of just 1pc, ill-suited for EV batteries.

It takes copious energy to separate the nickel from its tight iron bonds. This would not be commercially viable at Western energy costs, but Indonesia is bursting with thermal coal. Electricity is almost given away at Morowali, reportedly for six cents per kWh.

What happens to the other 99pc of the Indonesian rock, typically treated with chemicals?  The miners requested permits to dump it in the sea.

It is much the same story on nearby Maluku, at the heart of the world’s richest coral reefs. A $11bn nickel industrial complex is being developed at Weda Bay backed by five coal-powered plants, with seven more to come, which will together burn more coal than Brazil.

In a report last week, Climate Rights International said that fishing waters had been poisoned. It alleged the widespread destruction of mangroves, which store four times as much CO2 as land forests. Some 5,331 hectares of tropical forest have been cut down, with 142,964 hectares allocated to 66 mining concessions.

It accused companies of “land grabbing, coercion and intimidation of indigenous peoples”, with the open collusion of the Indonesian police and military.

This is the ugly face of the world’s EV rush. You can certainly mount a lacerating indictment of net zero humbug, and many have done just that.

But most of Indonesia’s nickel has so far been used to make steel, which does not distinguish between petrol cars and EVs.

The combination of the world’s cheapest coal and cheapest nickel allowed Indonesia in league with Tsingshan Holding and other Chinese groups to capture a quarter of the global steel market, adding capacity equal to Europe’s entire steel industry in short order. Nobody could compete.

Relatives carry a coffin containing the body of Irfan Bukhari, one of the victims of the explosion of a smelting furnace at a Chinese-owned nickel plant on Indonesia's Sulawesi island
The boom in nickel is taking a toll both on the land and on workers. An explosion killed 19 at a smelter in Sulawesi last month - AP Photo/Yusuf Wahil

Carbon emissions are five times higher than from steel made in the West. If ever there was a case for a carbon border tax, this is it.

Even so, there are market limits to the demand for nickel in steel. China cannot keep absorbing such volumes for long. Its population shrank by two million last year and its infrastructure has reached saturation. Recycled scrap is taking a bigger bite of the global market.

As for Indonesia’s bet on EV nickel hegemony, it has been suspect for some time. Chinese LFP batteries have already reached an energy density of 180 watt-hours per kilogram, which is good enough for low-cost workaday EVs.

McKinsey’s Mr Hoffman said the more advanced LMFP batteries, being developed by CATL and Gotion in China, are nearing 250 watt-hours per kilogram and are “pretty darned close” to the 280 benchmark for high-nickel batteries used in the Tesla model 3, the Audi e-Tron, or the Jaguar i-PACE.

There are wrinkles to iron out. The batteries do not last as long. But CATL has pushed the number of charging cycles to 1,500 and beyond. The gap is almost closed.

Needless to say, all the gigafactories being built in Europe today are still planning to produce high-nickel NMC batteries. Will they be outflanked even before they are finished?

The new LMFP batteries will no doubt be displaced themselves by the next generation of solid state technology or such exotica as sulphur or potassium batteries, all dangling the possibility of another leap forward in range and charging time by late-decade.

The moral of the tale is that we are not going to run out of the critical minerals needed for wholesale decarbonisation, and we do not have to destroy the ecosystem of the Spice Islands and the Molucca Sea to do it.

Technology has a wonderful way of coming to the rescue.

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