METALSIndonesia Harnesses Chinese Capital and Innovation to Dominate World Nickel Production
Indonesia’s success in deploying Chinese capital and innovation to become the dominant force in the global nickel industry has been achieved in the face of concerted opposition from the European Union through the World Trade Organization.
Indonesia’s success in deploying Chinese capital and innovation to become the dominant force in the global nickel industry has been achieved in the face of concerted opposition from the European Union through the World Trade Organization.
Over a decade, the high value-added share of Indonesia’s nickel exports has gone from 8% to 100%. Its mine output has risen nine-fold, and it is putting rivals, including nickel miners in Australia, out of business because they cannot begin to match the capital and operating costs of the Indonesian operations.
Enabling Indonesia to transform its place in one of the most important new energy industries could be seen as the most significant achievement yet of China’s Belt and Road program. President Xi Jinping underlined the strategic importance of Indonesia to China by launching the ‘maritime’ component of the Belt and Road program in an address to Indonesia’s parliament in 2013.
While Indonesia is expected to retain its non-aligned status under incoming president, Prawobo Subianto, the help China has given Indonesia to achieve a primary economic objective is likely to cement a bilateral relationship bearing some similarity to that between Japan and Australia.
The government of former Indonesian president, Bambang Yudhoyono, resolved in 2009 to raise the country’s returns from its raw materials by restricting exports of unprocessed ores, giving miners a five-year transition period. In the case of nickel, export of the raw ore was banned from 2014, with a grace period provided only if the mining company was investing in processing. By 2020, the ban on nickel ore exports was complete.
While Indonesia had profited from the global resources boom from 2005, its government argued that most of the benefits had been captured by the mining companies and had not contributed to Indonesia’s development.
Before the ban, Indonesia was extracting 71 million tons of nickel ore annually, of which 65 million tons was exported in its raw form. Most of the exports went to China, where it was smelted and used to manufacture stainless steel.
Chinese companies, led by the privately-owned Tsingshan Steel Group, responded to the proposed export ban with the construction of smelters in Indonesia. The Belt and Road program helped with the funding of an industrial park where the smelters were located, near the nickel mines. While raw nickel ore exports dropped to zero, Indonesia’s sales of nickel pig iron (an intermediate product) and stainless steel soared.
