Indonesia considers Opec-style cartel for battery metals

Indonesia is studying the establishment of an Opec-like cartel for nickel and other key battery metals, highlighting the geopolitical confidence of nations that are rich in resources needed to make electric cars.

Bahlil Lahadalia, the country’s investment minister, said Jakarta was looking at mechanisms similar to those used by Opec, the group of 13 oil-producing nations, that could be employed in the supply of metals that are central to the energy transition.

“I do see the merit of creating Opec to manage the governance of oil trade to ensure predictability for potential investors and consumers,” he said in an interview. “Indonesia is studying the possibility to form a similar governance structure with regard to the minerals we have, including nickel, cobalt and manganese.”

Indonesia is the world’s largest nickel producer, generating 38 per cent of global refined supply, according to consultancy CRU. It holds a quarter of the world’s reserves of the metal.

Asked whether it had contacted other large nickel producers about the cartel idea, the investment ministry said it was still formulating a structure that it could propose.

Any attempt to form a cartel to control global prices for nickel would be far from straightforward. Russia supplies a fifth of the high-purity nickel used in batteries, while Canada and Australia are also big producers. However, Indonesia is expected to be the biggest source of growth in the years ahead.

One complication 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 nations, such as Saudi Arabia, oil production is dominated by state companies.

Indonesia was an original Opec member, but suspended its membership over concerns about the impact of high oil prices on its economy, and over the effect of the cartel’s production cuts on its government finances. Indonesia became a net importer of oil 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 further processing facilities to turn it into battery material are needed.

It has banned nickel ore exports since 2020 in a bid to grow a domestic processing industry. Jakarta is planning taxes on exports of intermediate nickel products, with the goal of encouraging the development of a full electric vehicle supply chain. This year saw the launch of Indonesia’s first two domestically produced EVs, by South Korea’s Hyundai and China’s Wuling Motors.

Lahadalia said the country “will not budge and not flinch in terms of our policy”, even though the export ban sparked a World Trade Organization dispute with the EU.

Despite Indonesia’s mineral richness, its role in supplying western automakers with nickel is under threat from the fact that swaths of production are Chinese-owned and carbon-intensive because of reliance on coal-fired power generation.

Government data show that China doubled investment in the country in the first half of 2022 to $3.6bn, compared with the same period a year earlier, led by nickel smelter construction.

Frank Fannon, managing director of Fannon Global Advisors and a former US assistant secretary 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 previously touted forming an Opec-like group to control global supply and pricing of the battery metal.

Chile’s mining minister Marcela Hernando recently played that down, telling the Financial Times that “our interest in working with neighbouring countries has to do with the management of knowledge to help us to collaborate on competencies”.