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Business News/ Specials / How China Came to Dominate the World’s Largest Nickel Source for Electric Cars
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How China Came to Dominate the World’s Largest Nickel Source for Electric Cars

wsj

Chinese firms mastered a process that unlocked Indonesia’s ore for use in making EV batteries

Views of a nickel mining operation on Obi Island, Indonesia, earlier this year. Premium
Views of a nickel mining operation on Obi Island, Indonesia, earlier this year.

Across the Indonesian archipelago, new industrial plants are going up to process chunks of nickel ore for use in electric-car batteries. Five years ago, there were none.

What changed? Chinese companies had a breakthrough.

They tamed a refining process that was once unwieldy, unlocking Indonesia’s expansive deposits for the nickel-hungry EV industry. In doing so, they established Chinese dominance over what has grown into the world’s largest source of the commodity.

That gives China a leg up in the global race to secure minerals that are critical to the energy transition and is a blow to U.S. efforts to lessen American companies’ dependency on China. The Biden administration is pushing hard to diversify energy supply chains. But with nickel, Chinese companies are tightening their grip.

Beijing’s recent decision to impose export restrictions on gallium and germanium—two metals with key uses in semiconductors—underscores the potential risks of relying on China for crucial inputs.

Companies from China have set up at least three EV-focused processing plants in Indonesia in recent years and others are on the way. One planned facility drew investment from Ford Motor earlier this year, while another is being built by South Korean steel giant Posco Holdings. Both involve Chinese companies.

Indonesia has gone from being a marginal supplier of nickel for vehicle batteries in 2017 to the top source, accounting for around half of global supply in 2022, according to CRU, a commodities business-intelligence firm based in London. That number is likely to rise.

The archipelago nation holds one of the world’s largest nickel reserves. Millions of years ago tectonic plates collided in what is now the country’s east, thrusting the mineral-rich ocean floor to the surface and producing the nickel bounty. Indonesia’s variety of nickel ore—known as laterite—was considered difficult to process for use in EVs, and was refined mainly for stainless steel production in decades past.

Chinese companies changed that. The method they use, known as high pressure acid leach—or HPAL—had been around for decades, but earned a reputation for being more trouble than it was worth. It relies on extreme heat and pressure, which frequently damaged equipment and required laborious repairs.

Earlier projects in Australia, New Caledonia in the South Pacific and other places—led by Western and Asian companies alike—faced substantial delays and cost overruns.

A Chinese-run plant in Papua New Guinea was no major exception at first. But China ENFI Engineering, which designed the plant, and its production partners made gradual tweaks and fixes as problems arose. Their changes, while incremental and involving only minor innovations, nevertheless helped stabilize the plant, creating a new template for how such facilities can be run without major breakdowns, mining analysts said. Other Chinese companies replicated that model, in part by bringing experienced technical support staff from the Papua New Guinea site to Indonesia, said Martin Vydra, head of strategy for Nickel 28, a Canadian company that owns a stake in the Papua New Guinea facility.

“The big thing was the Chinese ability to transfer skills and knowledge," he said.

Among the beneficiaries was China’s Lygend Resources and Technology, which in 2018 joined with an Indonesian mining company, Harita Group, to build what would become Indonesia’s first HPAL plant for EV materials. It worked with ENFI, the designer of the Papua New Guinea facility, said an executive familiar with Harita’s operations.

ENFI and Lygend didn’t respond to requests for comment. In April, ENFI, which is a subsidiary of a state-owned company, said on its website that its success in HPAL technology had been transformational for Chinese companies.

“With these advancements, large-scale development of lower grade laterite is made possible, and Chinese enterprises are endowed with better access to resource development opportunities," it said.

Other Chinese-led ventures sprung up. Given HPAL’s spotty record, mining analysts at first braced for a bust. Instead, the projects ramped up quickly.

“The usual phases of development, namely feasibility, approval, construction and commissioning have taken place in record time," Angela Durrant, an analyst at energy research firm Wood Mackenzie, wrote in an April note. “China could ‘do’ HPAL quicker and cheaper than the west."

Environmental analysts warn of significant risks. HPAL facilities are carbon intensive and produce lots of waste that is difficult to safely store in rainy, earthquake-prone countries like Indonesia. Untreated solution from the Papua New Guinea plant was in 2019 found to have contaminated nearby waters.

Harita says the company stores its waste safely on land. Indonesia’s government says it doesn’t allow HPAL waste to be deposited in the ocean.

For Western automakers, the flow of Indonesian nickel assures the steady supply of a mineral that they need in spades. But in an increasingly contentious geopolitical environment, it also brings potential complications.

President Biden’s signature clean-energy policy, the Inflation Reduction Act that passed last year, ties electric-car subsidies to mineral-sourcing requirements. That means it matters more than ever where a mineral is extracted and refined—and by whom.

To qualify for certain subsidies, the law requires that EV batteries will soon have to largely contain minerals from the U.S. or a country with which the U.S. has a free-trade agreement. That excludes Indonesia. Chinese companies’ heavy involvement in Indonesia’s nickel operations is also likely to attract scrutiny under its provisions.

Non-Chinese companies have been more cautious. For a decade, the local unit of Brazilian miner Vale worked with Japan’s Sumitomo Metal Mining to develop a nickel project on Sulawesi island in eastern Indonesia. The plan called for Vale to mine while Sumitomo would process the ore at an HPAL facility.

The project hit snags, including debates about where waste would be dumped and who would be liable if there were problems storing it, according to a former Vale employee who was involved in it. Vale executives grew frustrated with the slow progress at a time when Chinese companies were forging ahead and dealing with problems as they arose, the former executive said.

Sumitomo withdrew in April 2022, saying the Covid-19 pandemic delayed permits and that it had learned that Vale had begun to seek an alternative. Two days later, Vale signed an agreement to develop a facility with China’s Zhejiang Huayou Cobalt.

A Sumitomo spokesman said that as a mining company, it was “inevitable to be reasonably cautious" to avoid accidents during construction and beyond. The project was scrapped because of differences in “time scheduling," he said. A Vale spokeswoman said the company joined with Huayou because its project was larger.

In March, Ford announced it was investing in the plant.

“Like other global automakers, our supply chain draws from the best available technologies, processes and minerals around the world, including from Chinese companies," a Ford spokeswoman said.

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