Will Indonesia's New President Continue Nickel Policy, Which Undercuts Competitors?

When Indonesia's new president, Prabowo Subianto, assumes office in October he'll preside over the world's biggest nickel reserves and is widely expected to continue policies that have led to a global price slump for the battery metal and stainless steel ingredient. 

The Southeast Asian nation accounted for more than half of global nickel production last year, but volume is only part of the story.

Plentiful ore, cheap labor and low-cost electricity from power plants burning price-capped coal have helped Indonesia flood the world market with nickel at prices that sharply undercut competitors mining the metal elsewhere.

Even with somewhat of a recovery since February, nickel prices are down around 19% over the past year.

This month, London-based Horizonte Minerals Plc HZMMF said it couldn't raise adequate financing for a nickel project in Brazil as potential investors declined to back the project because of "the unfavorable nickel market environment."

That's on the heels of other nickel miners including multinational heavyweights BHP Group Ltd. BHP and Glencore GLNCY saying they would mothball nickel operations.

"Indonesia produces some of the cheapest nickel in the world, so I think that the nickel operations in the rest of the world are going to really suffer," John Berman, chief investment officer of natural resources investment management company Berman Capital Group, told Benzinga. "Low nickel prices just give Indonesia the opportunity to gain more market share."

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Berman thinks the president-elect will have policies similar to those of his predecessor, Joko Widodo, widely known as Jokowi.

Jokowi transformed Indonesia's nickel industry by banning the export of raw ore, requiring that value be added domestically through processing before being shipped out of the country.

Amid the support for the domestic industry, Chinese companies began investing heavily in smelting and refining capacity that built up a steel supply chain in Indonesia.

Indonesia now appears to be using a similar playbook to create a domestic electric vehicle battery supply chain. This time around, it appears Chinese firms may have to take a smaller slice of the pie given the interest Indonesia is seeing from companies from other nations.

"The critical challenge lies in advancing nickel processing for electric vehicle production, which will be a pivotal task for the new administration," Ahmad Syarif, a doctoral candidate in international affairs at Johns Hopkins University and an expert in Indonesian energy and natural resources issues, told Benzinga.

Even though Subianto is seen as continuing his predecessor's nickel policies, his election leaves market participants and observers wondering how he might put his own stamp on the industry, Nikhil Parikh, CEO of Indonesia-focused advisory Anise Partners, told Benzinga.

Subianto comes to the presidency from the position of defense minister. That may make him more focused on foreign relations, particularly regarding strategic partnerships and investment for natural resources such as minerals that are critical to the energy transition, Parikh said.

He will want to attract investment from the West and Middle East without alienating China, Parikh said.

Over the next few years, Indonesia will continue to increase nickel refining capacity and leverage that to attract more of the electric vehicle supply chain, he added. 

That will mean more nickel ultimately stays in Indonesia, but for the foreseeable future it looks like the global market will continue to be awash in cheap Indonesian exports of the metal.

"I suspect it'll be full steam ahead for a while," Gregory Beischer, CEO of nickel miner Alaska Energy Metals Corp. AKEMF, told Benzinga.

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