Government plan backfires as aggressive resource approach suffers from unexpected market shift: 'There is more pain to come'

Indonesia's foray into nickel mining has hit a snag because of improving electric vehicle technology.

What's happening?

The move, backed by Chinese investors, pushed the country to the front of the line, but smelters are shutting down with a shortage of the metal and low demand, Bloomberg reported.

Three years ago, nickel prices peaked, but overproduction and cheaper EV battery chemistries have changed the equation. Indonesia produces over half of the world's nickel, but one of its top smelters is on the verge of closing up shop. PT Gunbuster Nickel Industry had to postpone paying its suppliers, according to Bloomberg.

"While the policies did boost Indonesia's export earnings and created thousands of jobs, the surge in processing capacity has far outpaced demand for nickel," the outlet stated. "The country is now looking to curb its mine supply in an effort to support the market — a move with grave consequences for producers."

Why is this important?

Bloomberg said that the government, "eager to boost manufacturing," used cheap coal and Chinese technology to turn the natural resource into a high-value export. But it may have overdone it. 

It's not just Indonesian companies that are falling off. Chinese industrial parks as well as an Australian group are in trouble, and Gunbuster parent Jiangsu Delong Nickel Industry Co. has collapsed.

The last hope may be the stainless steel industry, which uses nickel pig iron, though China is in a "prolonged property slump," per Bloomberg. One expert said the slump could stretch beyond another six months.

"There are some bright spots for demand in the stainless steel market, but nickel batteries are losing market share in the electric vehicle market," Dan Smith, head of research at Amalgamated Metal Trading Ltd., told Bloomberg. "There is more pain to come for producers before the market rebalances."

What's being done about Indonesia's collapsing nickel industry?

The about-face offers an opportunity for the government to turn to clean energy and technologies. Nickel mining has polluted the ocean and led to erosion, flooding, and mudslides, the BBC reported in 2023, harming the Indigenous Bajau people as well as coral reefs and clams.

While electric vehicles are undoubtedly better than gas-powered cars for the health of the planet and that of humans, this shows that without significant regulations and oversight, even forward-looking projects based on sustainability can go wrong.

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And no matter what EV batteries need going forward, the metals required will be mined in abundance, meaning companies must rely on solar, wind, and other renewable energy to power operations. It's also imperative that they work with governments and industry leaders to ensure environmentally safe practices and the well-being of people, wildlife, and plants.

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