How Indonesia and China Cornered the Nickel Market

0:00You're being sold an AI future where you're obsolete or irrelevant. That vision is wrong. At Palantir, they're building AI that helps workers and unlocks their full potential. American workers are our nation's greatest strength. AI shouldn't eliminate them. It should elevate them. Palantir is here to tell their stories. From factories to hospitals, AI is freeing people from drudgery, letting them do what humans do best. Create. Solve. Build. Palantir, making Americans irreplaceable.

1:13Thank you.

1:32Hello and welcome to another episode of the All Thoughts Podcast. I'm Tracey Alloway. And I'm Joe Weisenthal. Joe, I have a joke for you. A very special joke. Go on. Why did Anglo-American write down its nickel business? Because it was only worth five cents. Ah, that's so good. That's actually, okay, my line was because it was a few cents short of a viable return. But yeah, same thing. That's really good. Thank you. But you know what the thing is, is my daughter has gotten really into reading me jokes. So like she has all these like joke books. Like my brain is. You can anticipate. Yeah, like see where these all are going.

2:08All right. Well, on a serious note, Anglo-American rejected that bid from BHP Billiton, which is something that came up in our conversation with Jeff Curry recently. And as a result of that, it is now undertaking this formal process of selling off a bunch of assets and exploring options for its nickel operations. And one thing that I hadn't realized is just how much the nickel market has actually changed in recent years. Like, I sort of heard some rumblings of it, but I read something recently that really crystallized a lot of what's been happening in that market. And it is phenomenal. I have to say I have not given any thought about how much the nickel market has changed, in part because I never at any point had some conception of what the nickel market was in the first place.

3:01So you're way ahead of me on this. You're not thinking about the nickel market on at least a weekly basis? No, I know like two, three things maybe about nickel, which is that a lot of it's from Indonesia, I believe. It has some role in batteries or green energy, and so it's kind of an important commodity. What's the third one? Oh, it's also Indonesia. Could Indonesia move further downstream in the process so that it's not just exporting the raw nickel, but also exporting some of the actual like the or doing some of the value. That's a pretty sophisticated factoid about the nickel market. Those are the three facts I'm aware of about nickel.

3:38But beyond that, none. Like I could definitely not tell you the number two producing nickel country. OK, well, I have a bunch. And I definitely don't know why nickel is important in batteries either. So maybe we'll learn that. Oh, that's a good question. Well, I have a bunch of interesting stats that I think will sort of hit home stuff that has happened recently. But you mentioned the role of Indonesia in this market. And this is something that's relatively new. So I think they became the world's top supplier of nickel just in 2019. They overtook, I think it was the Philippines. And they now supply more than 55 % of the world's nickel.

4:13So just insane dominance of that market. And in addition to that dominance in terms of market share, there's also lots of geopolitical intrigue with China. China, by the way, is about to become a net refined nickel exporter. And I think like just a few years ago, its imports, so not exports, its imports accounted for like 14 percent of global supply. So it's gone from being like a net importer potentially to a net exporter in just a few years. crazy. Right. So these are crazy stats. And I feel like we really need to dig into what has happened here because there are all these sort of thematic odd lots ideas embedded in the nickel market.

4:58So one is just the idea of structural long-term demand for battery-related materials that will be important in the clean energy transition. I think nickel is used in hydrogen production too. I'm not sure. But in addition to that, you also have the difficulty of actually building out sustainable business models for getting these strategically important minerals that we need for the transition. And we've seen Indonesia, there are a lot of accusations that it's been flooding the market with cheap and low-grade nickel. And so that makes it harder for everyone else, like Anglo-American, to make money on this particular business.

5:35Is that pig nickel? We'll get into that. We'll talk about all the different types of nickel. So anyway, I just think it's such an interesting story and it's one that's sort of flown under the radar, at least for me recently. And so I am very pleased to say that we do in fact have the perfect guest to discuss this. We're going to be speaking with Michael Vidmer. He is the Bank of America head of metals research and it was his report that really put this on my radar and he just laid out some of the numbers that I cited to you a couple months ago and I'm so glad we could get him on the show to further discuss this.

6:10So Michael, thank you so much for coming on All Thoughts. Thank you very much for having me. Should we start with the basic question that Joe already sort of alluded to? What is nickel? Because it's not a singular commodity. In some respects, it's sort of like oil. There are all these different grades and production uses for it. So when we say nickel or the nickel market, what are we talking about? Yeah. So nickel is an element. I think that's the first thing I would say. It comes in elementary form out of the earth, but what normally happens is that consumers use a nickel in process form. So you have got the refined nickel that you can use, for instance, in your buckles, in your belt buckles to make them nice and shiny.

6:54You can then use it or another form of nickel in form. It's more like a chemical in EV batteries. And then there's still another type of nickel. It's more called nickel pig iron or ferronickel that you can then use in a stainless steel mill. So it comes in very different forms. What all of those have in common is they have some form of nickel in them. The batteries is probably the one, you know, belt buckles have been around for a while. Stainless steel has been around for a while. Obviously, a lot of interest, particularly now strategically with the energy transition, et cetera, related to batteries.

7:28What is the role of nickel in batteries and how crucial is it as one of the, you know, We talk about copper. We talk about lithium. How important is nickel? So we can break down the battery sector a little bit. Yeah, great. When you're looking at China and when you're looking at the world outside China, it's different type of EV batteries that car manufacturers can use. In China, the EV manufacturers have gone down the route of using what is called a lithium iron phosphate battery. It used to be a very simple chemistry. It didn't have the same kind of energy density. It didn't give you the same kind of driving ranges that you would get with other types of batteries.

8:02But it was cheap. And I think that's one reason why the Chinese EVs are not as expensive as the Western EVs. The West, world outside China, has relied on a different type of EV battery chemistry. And these batteries contain nickel. They give you more energy density. They give you a higher driving range as well. And when you're then breaking down the battery, you have got three elements effectively. So you have got an anode and a cathode. And between those, that's where the electricity flows. and it's the cathode specifically where you then have the nickel in them. So where does nickel actually come from?

8:39So we mentioned Indonesia already. I think I mentioned the Philippines. But who are the big players in this market and how is it actually extracted from presumably the ground? Again, very different methods of extracting the nickel. Again, if you're breaking it down a little bit, you tend to have two types of deposits out there. The one deposit is more in the colder regions and then you have got another set of deposits that's more in the warmer and wetter regions. There you have got a lot of oxidized ores and weathered ores that are a little bit more difficult to treat. The former, so the nickel ores that are in the colder regions like Russia, for instance, are relatively easy to extract.

9:18You take them out of the ground, send them through a smelter, refine them, and boom, you have got your refined nickel. The nickel ores that are in the warmer and wetter regions because they're oxidized and weathered, they are a little bit more difficult to process. So the different technologies that you can use, there's one technology, again, where you're using fire refining, and then there's another technology where you are using sulfuric acid effectively to leach the nickel out of the ores. When you're looking at the biggest players in the space, it has actually changed a lot, and you mentioned it already at the outset.

9:54Historically, when you're looking at it, We had Russia as a big nickel producer, Australia as a big nickel producer, the Philippines were in the fold as well, Canada to some extent too. But what's happened recently is as the energy transition started to take off, market participants were really focused on increasing nickel supply quickly. And there's one country that just jumped at the industry and that country is Indonesia. It has the weather type of ore, but it has that in abundance. So it's very easy to actually take it out of the ground. And the Chinese went into Indonesia. They're very innovative also in the production technologies and managed to take the nickel out that they then needed to drive the battery industry.

10:39So I definitely want to get into Indonesia and what they've done to sort of rapidly expand their domestic nickel industry so fast. But just one more question before we get to some of these policy questions and supply. When looking at a total demand, global demand for nickel, how much is batteries and how much has the rise of the so-called energy transition, how much has that changed demand curves relative to, say, where we were 10 years ago? Like, how important is it as a buyer of nickel now? Oh, massively has changed massively. 10 years ago, the battery sector had virtually no share in nickel demand.

11:19When you're looking at it now, virtually all of the demand grows. And like how many tons of nickel do we produce and how many tons would we be producing every year if it weren't for that battery demand? So look, a few years back, the nickel market was around 2 million tons. By 2030, it's potentially twice as much. And virtually all of the demand grows and then coming through from the EV battery side.

11:56Silicon Valley is selling you a future where you're obsolete, or worse, identical. At Palantir, they're witnessing something different and revolutionary, from re-industrializing the nation's defense base to shipyard workers building faster and frontline workers boosting productivity, AI is transforming work across the nation. AI is not replacing American workers or flattening them into conformity. It's unleashing what makes each one irreplaceable, their judgment, their craft, their creativity. When American workers become more powerfully themselves, they own the future. Palantir, making Americans irreplaceable.

12:37Running a business is hard enough, So why make it harder with a dozen different apps that don't talk to each other? One for sales, another for inventory, a separate one for accounting. Before you know it, you are drowning in software instead of growing your business. This is where Odoo comes in. Odoo is the only business software you'll ever need. It's an all-in-one, fully integrated platform that handles everything. CRM, accounting, inventory, e-commerce, HR, and more. No more app overload. No more juggling logins. Just one seamless system that makes work easier. And the best part? Odoo replaces multiple expensive platforms for a fraction of the cost.

13:16It's built to grow with your business, whether you are just starting out or already scaling up. Plus, it's easy to use, customizable, and designed to streamline every process. So you can focus on what really matters, running your business. Thousands of businesses have made the switch. So why not you? Try Odoo for free at odoo.com. That's O-D-O-O dot com. Okay, so going back to Indonesia, so it seems like they made a strategic decision that this was an industry that they wanted to build out. And I think it started under the former president of Indonesia, whose name I am sure I'm going to mispronounce, but Susilo Bambang Yudoin.

13:58Is that right? Yes. Okay. But it's been continued under Joko Widodo. So why did they decide this was an area of strategic or financial interest? So it was the Indonesians which opened up the country, but ultimately it was actually China which drove that development. And I think you see that a lot in the public discussion at the moment. I think the tariffs that President Biden, for instance, imposed on Chinese EVs, I think there is this undercurrent or the concern that the Chinese government very strategically, over the past 20 years built its EV industry. And when we're talking EV industry, it's not just the EV side of things that the Chinese government has focused on.

14:43It's literally the entire supply chain. So they looked at initially, well, let's build some cars with a combustion engine. But then China realized it's actually hard because the US and Europe actually have quite strong industries. And then they looked, well, if it's hard to compete in cars with a combustion engine, why don't we do EVs? And that's exactly what they did. And then they set up a long-term strategic industry policy and looked at what they need to accomplish becoming the dominant producer of EVs. And one of the things that the Chinese government realized very early on is if you have a strong demand growth for EVs, you also need the raw materials.

15:22And particularly the battery raw materials. Without batteries, the EVs don't go very far. And so the Chinese government looked at where some of those battery raw materials are. They did it in lithium, another battery raw material. They did it in cobalt. And they did it also in nickel. And in 2013, the two presidents of China and Indonesia effectively sat together. And the discussion pretty much went like that. The Chinese said, look, we need the nickel. The Indonesian said, well, we have the nickel. And the Chinese said, well, can we invest? And the Chinese said, yeah, do, come. Let's develop that industry together.

15:55And so the Indonesian government then, together with the Chinese, set up industrial parks. And through that industrial park supported by Chinese money, the nickel industry then developed very, very quickly. It's remarkable the pace with which Indonesia and China in conjunction have been building that industry. Let's talk a little bit about how fast that happened. So I think, Tracy, did you say it was like 2019 even? Indonesia wasn't that big of a player? I'm citing Michael here, but in 2019, it became the biggest producer of nickel. And now it's overwhelmingly. Yeah. What were the nature of those early relationships?

16:32What did China get? What did they have to offer from a technological transfer? And then what is Indonesia get, I guess, in terms of royalties and jobs? Like how what was the economics of those? So what Indonesia realized, Indonesia always was an exporter of nickel ores, which is unprocessed stuff. You basically put it on a ship, send it off to China, the Chinese then process it. And then the Indonesian government realized at some stage that there's actually not a lot of value added in that. And they also saw that demand potentially increases very strongly. And so they wanted to build more of a value added downstream industry.

17:09Indonesia wanted to build a downstream processing industry, invited, and then was looking at how to actually accomplish that. So in the first instance, what they did is they stopped the exports of unprocessed nickel ores. So in 2014, you could no longer ship unprocessed ores. In that year, Indonesia had a global nickel market share of less than 10%, like 5 % or 6%, very low. And then I think various countries and operators were looking at the Indonesian ores. And I said before, the Indonesian ores are weathered ores, oxidized ores, very difficult to process. And the Chinese then went into Indonesia.

17:47It's one company in particular who then looked at innovative production technologies and started experimenting with different methods of extracting the nickel from the nickel ores and were actually quite successful. And once they had this template in place, the nickel industry then expanded quite quickly. Has anyone else been able to replicate that Chinese processing technology that you just mentioned? Is this something that other people are doing that has also increased supply elsewhere in the world aside from Indonesia? Or is it sort of a China-Indonesia exclusive thing? So there's two technologies.

18:25One called pressure as a leaching that has been trialed before. But literally, when you're looking at all the projects that have been brought online in Australia over the lifetime of those projects, those projects will not pay for the initial investment because it's just a very difficult technology. The Chinese have been very good in bringing that online. The other technology, which is more pyrometeorological, which is fire smelting and refining, that is also dominated by the Chinese. So they already had a very strong... Wait, just to be clear, Australia has basically tried to do the exact same thing and internally have not been able to do it economically.

18:58Yeah, so there was a discussion, it was about 10, 15 years ago, on the type of ores that are available in Indonesia. And I think the undertone always was, look, the ores are there, but they're just very difficult to process. And therefore, it might be hard to see very big production increases coming through. And that was true up to the point where the Chinese actually then went into Indonesia and started developing those assets. So talk to us more about the sort of virtuous cycle of the supply chain that this is creating. So China now has access to this cheap and abundant nickel that feeds into their EV industry.

19:37How crucial has that nickel been in sort of building out the electric car business in China? I think nickel on its own probably wouldn't have made much of a difference. But I think where China was very strategic in making sure that all of the raw materials that are needed are available. So it's not just the nickel side. It is the lithium side as well. It is the cobalt side as well. That's everything that goes into the cathodes. And when you're looking at the anode, the graphite side of things, again, China is dominating. So when you're looking at all of those critical raw materials, a lot of that is being dominated.

20:14by China. And look, you can take a slightly different view on that. Take the last 20 years during the period of globalization. I bet around 2010, 2011, the guests that you would have had here, there was a lot of talk about, I don't know, Netflix, the services industry and the cool stuff basically. Now this is the cool stuff. But no one realized that actually you can't run an economy without having the basic raw materials. So the West effectively created a vacuum in those supply chains that China effectively filled. And that's the issue that governments now have to grapple with. How much of the Chinese edge when it comes to refining or processing or I guess even acquiring raw commodities, how much of the edge is just a sheer scale question?

21:00There is a gigantic market in China, period. There are a lot of workers in China, period. And so even setting aside whether different groups of engineers and scientists could replicate these processes on paper, how much is just the pure scale edge part of the story? I mean, having a big domestic market certainly helps. But again, what also helps is having a strategic industrial policy to actually being able to capitalize on that domestic market. And it's, I think, the conjunction of those two that brought about that dominance in the supply chain. Now, the problem that we're having increasingly is, and this always happens in China, we had it in steel and we had it in aluminum.

21:45When the Chinese government starts developing industries, there's actually inherently a lot of competition also within China. But you always get overinvestment. You have got overcapacity. So take the last study from the European Union, for instance. The European Union estimates that last year the Chinese could have produced twice as many cars than they did through the overcapacities that they've had. And so what you're seeing now is that some of those overcapacities is, or there's a threat that some of that overcapacity is actually now being exported to the Western markets. And again, that takes us back to the whole discussion about tariffs and trade protectionism.

22:19But it is that entire approach, I think, that we've seen in the last 10 to 15 years that brought kind of those supply chains together. Okay, speaking of overcapacity, I mentioned in the intro that there have been these accusations of Indonesia essentially flooding the market with low-grade and low-price nickel. What impact has the dominance of Indonesia on the nickel market actually had on other businesses? So if I put it very simply, I think for China, it's almost always about quantity, not about value, about volume, but not about value. And so coming back to preventing bottlenecks through the supply chain, when you're looking at the industrial policy, I think what China wants to prevent is constraints and bottlenecks and therefore higher prices that would effectively make it difficult for the strategic industry like EV manufacturers to produce those EVs.

23:16And so what we see in Indonesia at the moment is a lot of discussions about where the production costs are in Indonesia. What is the marginal cost? Because ultimately, if you're prioritizing volume over value, then you're producing at costs. Now, the problem for the producers outside China is if that is the name of the game, there is not a lot of fat in producing nickel. And that's why we've seen the Western producers like BHP and Anglo actually taking a relatively bare review on their nickel assets. BHP actually is probably the one that I would, you mentioned Anglo before, but BHP is the one that I would highlight potentially even more.

23:58So they have one operation in Australia called Nickel West. It's a really significant side, big side actually. And a few years back, we thought that that could actually be the supplier of choice to the Western or to the EV industry. but that's actually one of the assets that BHP doesn't assign a lot of value to anymore these days. So prices have just come down so much that this big project in Australia just can't make much money. Yeah, it's effective today.

24:52We'll see you next time. is where Odoo comes in. Odoo is the only business software you'll ever need. It's an all-in-one, fully integrated platform that handles everything. CRM, accounting, inventory, e-commerce, HR, and more. No more app overload. No more juggling logins. Just one seamless system that makes work easier. And the best part? Odoo replaces multiple expensive platforms for a fraction of the cost. It's built to grow with your business, whether you are just starting out or already scaling up. Plus, it's easy to use, customizable, and designed to streamline every process so you can focus on what really matters, running your business.

25:32Thousands of businesses have made the switch, so why not you? Try Odoo for free at odoo.com. That's O-D-O-O dot com. Hey, Ryan Reynolds here, wishing you a very happy half-off holiday because right now Mint Mint Mobile is offering you the gift of 50 % off unlimited. To be clear, that's half price, not half the service. Mint is still premium unlimited wireless for a great price. So that means a half day. Yeah. Give it a try at mintmobile.com slash switch. Upfront payment of$45 for three month plan equivalent to$15 per month required. New customer offer for first three months only. Speed flow after 35 gigabytes of networks busy.

26:09Taxes and fees extra. See mintmobile.com. I want to go back to something you said in the beginning about the two different types of chemistries. So on some basic level, the nickel-based batteries are not as efficient as the sort of the chemistry that's in the West. But the Chinese batteries are like the best in the world, right? Yeah. So again, this is when you would have to go back because the sector is evolving a lot at the moment. So initially, I think when we started talking about the EV industry, the idea was and that's seven eight years ago that nickel based batteries are the battery of choice in China and potentially outside China the Chinese always had that lithium iron phosphate battery which doesn't contain any nickel but initially because it has a much lower energy density it was never thought to be kind of the supply of choice but there was a lot of again innovation in that space and those batteries have become much much better they are folded differently They are put together differently.