How China dominates the supply of nickel for electric car batteries

Chinese companies have altered a once cumbersome refining process to find new uses for Indonesia's vast nickel reserves.

Across Indonesia, new factories have recently opened up to produce nickel used in electric vehicle batteries. Five years ago, there were no factories here.

The island nation currently has the largest nickel reserves in the world. However, nickel in Indonesia is found in laterite ore, which is considered very difficult to process for use in electric vehicles. Therefore, for the past few decades, nickel mined in Indonesia has been used only to produce stainless steel.

Analysts say Chinese companies have made a breakthrough. They tweaked a once cumbersome refining process that helped unearth huge reserves in Indonesia to feed the electric-vehicle industry, which is in dire need of nickel.

A nickel production facility in Indonesia. Photo: WSJ

The technology they use is HPAL - extraction using high pressure acid. This technology has been around for decades, but is considered cumbersome and troublesome. HPAL requires high heat, high pressure, which makes equipment prone to failure and requires frequent repair. Previous projects in Australia, New Caledonia and elsewhere have been behind schedule and over budget because of this technology.

A factory run by a Chinese company in Papua New Guinea was originally no exception. However, China ENFI Engineering - the factory design company - made many modifications and in turn fixed the problems. This stabilizes the plant and creates a new process to operate without major equipment failure, mining industry analysts say.

Other Chinese companies have followed suit, in part by bringing in experienced technicians from Papua New Guinea to Indonesia. "The problem lies in their ability to transfer skills and knowledge," Martin Vydra, chief strategy officer of Nickel 28, which owns a stake in the Papua New Guinea plant, told the WSJ .

One of the beneficiaries is Lygend Resources & Technology (China). In 2018, this company cooperated with mining company Harita Group (Indonesia) to build the first HPAL factory here, specializing in supplying materials for electric vehicles. They have partnered with ENFI.

On its website in April, ENFI said its HPAL technology success had been transferred to other Chinese businesses. "With these improvements, large-scale processing of low-quality laterite ores has become possible. Chinese enterprises also have better access to resources," ENFI said.

Workers at a Harita nickel factory. Photo: WSJ

This is giving China an edge in the global race to dominate the minerals needed for the energy transition. This is also a blow to US efforts to help American companies reduce their dependence on China.

The administration of US President Joe Biden is promoting diversification of the energy supply chain. However, with nickel, Chinese businesses are increasingly tightening control.

In the past few years, Chinese companies have opened at least three processing plants that focus on supplying materials for electric vehicles in Indonesia. Many other factories are under construction.

A factory that attracted investment from Ford Motor earlier this year. Another facility was built by steel giant Posco (Korea). Both involve Chinese businesses.

HPAL is very expensive. However, Chinese businesses are still increasing their bets on this technology. They believe that nickel prices will remain high. And while ore prices remain as cheap as they are today, HPAL is commercially viable.

As of mid-December 2022, Chinese companies have poured $3.2 billion into the Indonesian islands of Sulawesi and Halmahera to mine nickel. In total, over the past 10 years, they have poured in here $ 14.2 billion - enough to ensure a nickel supply for the next decade. BloombergNEF forecasts that Chinese companies will dominate this supply chain for at least the next five years.

According to research firm CRU (UK), in 2017, Indonesia was only a small supplier of nickel for electric vehicle batteries . But for now, they are the top supplier. Data from the US Geological Survey also shows that in 2021, Indonesia will account for 22% of nickel reserves and provide 37% of the world's nickel. China's reserves are only about 5%.

For European automakers, nickel from Indonesia helps them have the stable supply they need. However, in the context of the volatile geopolitical environment, this supply also has a downside.

Under the Inflation Reduction Act, passed by the US last year, electric vehicles will be subsidized if they meet the country of origin requirements. This means where and by whom the nickel is mined does matter.

To be subsidized, electric vehicle batteries need to use a large amount of minerals from the US or a country that the US has a free trade agreement with. Indonesia does not respond to this request. The deep involvement of Chinese companies in nickel mining in Indonesia will also complicate matters.

However, companies outside of China are increasingly cautious in this area. For a decade, the Indonesian subsidiary of Brazilian mining company Vale has partnered with Sumitomo Metal Mining (Japan) to develop a nickel project on the island of Sulawesi. Vale is in charge of mining, while Sumitomo processes ore at a factory using HPAL technology.

However, a former Vale employee told the WSJ that this project has many problems, from where the waste goes to who is responsible if something goes wrong. Vale executives are increasingly frustrated by slow progress, while Chinese companies continue to grow.

Sumitomo withdrew from this project in April 2022, citing that Covid-19 caused a delay in applying for a permit. Two days later, Vale signed a cooperation agreement with Zhejiang Huayou Cobalt (China).

In March, Ford announced an investment in this plant. "Like global automakers, our supply chain is joined by the best technologies, processes and minerals from around the world, including China," a Ford spokesperson said. determined.

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