Vale Indonesia, Ford Motor and Huayou in Joint Agreement to Build Nickel Plant

What's going on?

PT Vale Indonesia enters a three-way partnership with China's Zhejiang Huayou Cobalt and US car maker Ford Motor to build a nickel processing plant in Kolaka, Southeast Sulawesi.

What does this mean?

The future of cars looks to be electric (ask Elon Musk, he'll agree). Electric Vehicle (EV) market is poised to grow 29% annually over the next 8 years. By 2030, we can expect 32% of new car sales to be EV, about 31 million cars.

While Tesla is still the market leader, traditional car makers have started to ramp up their EV strategy, including VW Group, Hyundai, and BMW. US car maker Ford Motor have also joined the party, rolling out their target of 600 thousand electric cars sold in Europe by 2026.

That's a lot of cars. One question though: Can they get enough batteries to power all those cars?

There are two types of batteries currently preferred by EV manufacturers:

• LFP (Lithium-Iron-Phosphate): Lowest cost alternative for car makers. This is preferred for short range cars as it requires more frequent charging.

• NCM (Nickel-Cobalt-Manganese): More expensive than LFP, but better performance for long range cars. This is the preferred option for Europeans, who likes cars that can take them cross-country or cross-continent in the fewest charges.

Ford's strategic focus on the European market means it needs more nickel-cobalt based batteries.

Indonesia holds the world's largest nickel reserve and produces 37% of world production. PT Vale Indonesia is the country's most valuable player in nickel mining, with annual production of 65,000 tonnes and USD 953 million in revenue. Meanwhile, Huayou is a Chinese mining company specializing in cobalt, and battery technology and manufacture.

Thus, it makes sense for Ford to strike a deal with Vale and Huayou. The agreement is to build a nickel processing factory in Kolaka, Southeast Sulawesi with an annual output of 120,000 tonnes.

In this factory, raw nickel is processed using a technology called High Pressure Acid Leaching (HPAL) to produce MHP (Mixed Hydroxide Precipitate). MHP can then be used as raw material for EV battery manufacture.

In short:

Vale Indonesia will extract raw nickel ➡ Huayou will build the processing factory and provide the HPAL technology ➡ Ford will purchase the output for their EV battery needs.

Win-Win-Win.

Why should we care?

This deal is part of a larger strategy by the Indonesian government to develop nickel processing capability in-house.

Historically, Indonesia have been focused on exporting nickel in raw form. In 2014 and again in 2020, the government introduced a raw nickel export ban in an attempt to increase domestic investment in value-adding processing projects.

Here it is in President Jokowi's own words:

"Indonesia’s current business strategy is to escape our dependence on countries exporting raw materials and their imported products by accelerating the revitalization of the processing industry. This will provide our industry with a higher value,” Jokowi said.

And it is working.

Investments in the nickel processing sector has exploded in the past 8 years. China alone has invested and committed $30 billion in Indonesian nickel processing projects. One of them being the first HPAL factory in North Maluku. Seven more such projects are in progress.

While the export ban means losing export earnings and tax revenue temporarily, the long-term goal of building a more valuable processing industry is coming to fruition. Processing industries are more technologically advanced, create more jobs and boost future tax income.

Short-term pain for long-term gain.

So what's next?

Next is to build the capability to manufacture the batteries and eventually electric vehicles in-country.

Is that even possible? Yes, in fact, progress is well underway.

Construction of Southeast Asia's first EV battery factory is currently taking place in Karawang, West Java in collaboration with LG consortium. In March 2022, Hyundai opened its first car manufacturing plant in Cikarang capable of EV production.

The end goal here is to have a fully integrated EV value chain in Indonesia, from mining to processing to battery production and finally to EV manufacturing. Exciting times ahead.

Until next time...

- Jason

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