What is nickel?
Nickel is a metal that plays an important role in various industries, particularly in the manufacture of stainless steel and lithium-ion batteries. The two most common battery types, Nickel Cobalt Aluminium (NCA) and Nickel Manganese Cobalt (NMC), contain up to 80% nickel. These batteries are widely used in electric vehicles (EVs) and the renewable energy sector due to nickel's ability as an efficient energy storage material.
Indonesia plays a significant role in the global market, accounting for around 50.5% of global nickel production by 2023. However, most of the nickel products produced in Indonesia are nickel pig iron (NPI) and ferrous nickel (FeNi), which are mainly used in stainless steel. Only a small portion of production is destined for electric vehicle batteries, namely grade 1 nickel with high nickel content of up to 99%.
What is nickel downstreaming?
Nickel Downstream is an effort by the Indonesian government to increase the value of minerals by processing raw nickel ore domestically. The ban on raw ore exports from January 2020 has encouraged massive investment in the smelting industry. With a focus on downstreaming, Indonesia has ambitions to become the centre of the global electric vehicle battery industry, strengthening its position in the global energy transition.
But there are significant challenges. Downstreamisation requires advanced technologies such as high-pressure acid leaching (HPAL) to process limonite-type nickel ore into battery materials such as mixed hydroxide precipitate (MHP). Currently, only a few companies in Indonesia have the capacity to use such technology, such as PT Halmahera Persada Lygend and PT Huayue Nickel Cobalt.
Challenge in nickel downstream
While downstreamisation promises to boost the economy, its implementation faces major challenges in terms of sustainability and energy transition. Some of the barriers include
Use of fossil energy
The majority of smelters in Indonesia use electricity from captive, coal-dominated power plants. This contradicts the energy transition goal of reducing dependence on fossil fuels.
Social and environmental impacts
Uncontrolled downstreamisation creates social and environmental problems, especially around mines and smelters. In some areas, such as Sulawesi and Maluku, environmental degradation and declining incomes in the fishing and agricultural sectors have been reported.
Oversupply and nickel prices
Overproduction without regard to global market demand has depressed nickel prices. In 2024, nickel prices fell to USD 16,021 per tonne and are forecast to continue falling until 2027.
The relationship of nickel downstreaming to the energy transition
Although the government is promoting downstreamisation as part of the energy transition by providing raw materials for batteries, only a small proportion of Indonesian nickel is used in electric vehicle batteries. The majority of production is still focused on low-grade nickel for stainless steel. On the other hand, global trends show a shift towards lithium ferro phosphate (LFP) batteries, which do not require nickel, putting increasing pressure on the high-grade nickel market. Read the full briefing below.
Conclusion and recommendation
In order for nickel downstream to support a sustainable energy transition, several steps need to be prioritised:
Energy diversification
Reduce reliance on captive power plants and accelerate the transition to renewable energy.
Production limits
Control production to avoid oversupply and maintain price stability.
Focus on Grade 1 nickel
Increase production of high quality nickel to support the global battery industry.
Sustainable regulation
Adopt regulations that consider long-term economic, social and environmental impacts.
Law enforcement
Strengthen monitoring and enforcement of nickel mining and industrial companies that operate in accordance with environmental, social and governance (ESG) standards.
With the right policies and strategies, nickel downstream can provide economic benefits while supporting the global energy transition without compromising the sustainability and well-being of local communities.
