[battery mastery](40) Half of 'critical mineral' nickel comes from Indonesia, backed by Chinese capital

POSCO Group announced on the 31st of last month that POSCO C&GR Nickel Solutions and C&P (C&P) New Material Technology have each commenced construction of a nickel refining plant and a precursor production plant, respectively, in the Yeongilman 4 Industrial Complex in Pohang. POSCO C&GR Nickel Solutions is a joint venture with POSCO Holdings and China's CNGR investing in a 6:4 ratio. C&P New Material Technology is invested in a 2:8 ratio by POSCO Future M and CNGR.

The nickel refining plant plans to import nickel matte, an intermediate product with about 70% purity, from CNGR's nickel smelting subsidiary and produce high-purity nickel with 99.9% purity for secondary batteries. The nickel produced in this way will be sent to C&P New Material Technology to be used as raw material for precursors. POSCO Future M will use these precursors to manufacture cathode materials.

POSCO Group plans to strengthen the value chain of secondary battery materials, from nickel to precursors to cathode materials, through collaboration with China's CNGR.

Attendees press the groundbreaking button at the groundbreaking ceremony for the joint nickel and precursor plant between POSCO Group and China's CNGR held at Pohang Yeongilman 4 Industrial Complex. (2024.5.31) Photo by POSCO

Nickel is used as a key material in secondary battery cathode materials along with cobalt, manganese, and aluminum. Battery capacity and output vary depending on the cathode material, and nickel is closely related to energy density. Nickel is an indispensable component in ternary batteries such as NCM (Nickel-Cobalt-Manganese) or NCA (Nickel-Cobalt-Aluminum).

Nickel has mainly been used for manufacturing stainless steel (STS). About 70% of nickel production is used for stainless steel manufacturing. Recently, the proportion used for secondary batteries has been gradually increasing. POSCO Group's establishment of a nickel smelting plant with China's CNGR is aimed at internalizing nickel, a core material for secondary batteries.

Nickel, along with lithium, also affects the price of cathode materials and batteries. Cathode materials account for about 50% of the cost in lithium-ion batteries. Nickel holds the highest proportion in the precursor raw materials for cathode materials. High-nickel batteries, which increase the nickel content in cathode materials up to 90%, have also been commercialized.

According to the Korea Mining Industry Promotion Corporation's Resource Information Service, as of June 4, nickel was traded at $18,900 per ton on the London Metal Exchange (LME). Nickel prices surged to $42,995 per ton in March 2022 due to supply concerns caused by the Russia-Ukraine war. However, due to oversupply from Indonesia, increased inventories, and stagnation in electric vehicle demand, prices fell to the $15,000 range by the end of last year.

The oversupply of nickel is expected to continue for the time being. Jason Sappor, Senior Analyst at S&P Global, explained, "Despite recent production disruptions in New Caledonia, increased production in Indonesia and China is expected to result in a global primary nickel market surplus of 120,000 tons in 2024," adding, "Since the end of 2023, total nickel inventories on the LME have increased by 42.7%, and due to the current market oversupply, price increases will be limited for the remainder of this year."

Nickel for Secondary Batteries, a Different 'Class'

Nickel (Ni) is a silvery-white metal with a strong luster that does not oxidize in air, making it widely used for plating and alloy materials. Nickel resembles silver in color and has strong corrosion resistance, so it is also commonly used as material for coins worldwide. In the United States, the 5-cent coin is called a nickel.

Nickel exists in the Earth's crust at a concentration of about 80 ppm. Compared to other non-ferrous metals such as copper (50 ppm), zinc (75 ppm), and cobalt (20 ppm), nickel is relatively abundant. However, its price is relatively high because it is difficult to separate in pure form and developing economically viable mines takes more than 10 years.

Image source: Korea International Trade Association

Nickel ore is broadly classified into sulfide ore and laterite ore. Globally, laterite ore accounts for 60%, higher than sulfide ore's 40%. Sulfide ores are mainly found in Russia (Norilsk), Canada (Sudbury), Australia (Nickel West), and Gansu Province in China. Sulfide ores are buried deep underground, making mining costly, but they have a high nickel content of 1.5?2.5%. Sulfide ores have a brown color due to high sulfur content.

Laterite ores are mainly distributed in tropical regions such as Indonesia, the Philippines, Papua New Guinea, New Caledonia, and Brazil. Laterite ores are located near the surface and contain a lot of moisture. Mining is easier due to surface location, but nickel content is relatively low at 1.0?1.8% compared to sulfide ores.

Laterite ores are further divided into limonite (nickel content below 1.3%) located in the upper soil layer and saprolite (nickel content above 1.8%) located in the lower soil layer. Saprolite ore with higher nickel content is refined using dry smelting with electric furnaces, while limonite ore with lower nickel content is refined using wet smelting methods such as High-Pressure Acid Leaching (HPAL). Dry smelting involves applying high heat to extract metals. HPAL is a method that uses strong acid under high pressure to increase nickel purity.

Especially, limonite, which was previously untreated due to low nickel content, can now produce high-purity nickel using HPAL, leading to a rapid increase in nickel production.

Meanwhile, nickel is classified into Class 1 with purity above 99.8% and Class 2 with purity below 99.8%. Class 1 nickel is used in secondary battery cathode materials. Class 1 nickel is further categorized by form into cathode, briquette, pellet, and powder. Class 2 nickel includes ferro-nickel (FeNi) and nickel pig iron (NPI).

Traditionally, high-grade sulfide ores were mainly processed into Class 1 nickel, and laterite ores into Class 2. However, recently, large deposits and easy mining of laterite ores have led to processing into high-purity nickel for cathode materials using HPAL. Wet smelting produces intermediate products such as nickel matte (nickel content 55?75%), nickel hydroxide precipitate (MHP), or mixed sulfide precipitate (MSP), which are then processed into nickel sulfate used in cathode materials.

MHP and MSP contain nickel at levels of 34?55% and small amounts of cobalt (1?4.5%). MSP uses toxic hydrogen sulfide (H2S) gas during production, whereas MHP is relatively safer and compatible with Class 1 nickel processes such as briquette and powder, leading to expanded production.

Nickel sulfate used as a raw material for secondary battery cathode materials is an inorganic compound made by dissolving nickel in sulfuric acid and evaporating it, appearing green. Cathode materials for ternary batteries like NCM and NCA are made by mixing precursors containing nickel, cobalt, manganese in appropriate ratios with lithium. Nickel sulfate is used as a precursor raw material for batteries.

Nickel sulfate

Nickel sulfate was previously used mainly for plating solutions and catalysts but has seen a surge in demand as a raw material for lithium-ion batteries. Market research firm QY Research estimated that in 2022, 77% of nickel sulfate production was used as battery precursor raw material. This proportion is expected to exceed 90% by 2028.

'Indonesia, the No.1 Nickel Producer,' with the Shadow of China Looming Behind

According to the U.S. Geological Survey (USGS), the world's nickel reserves are estimated at about 130 million tons. Indonesia is estimated to have the largest reserves, about 55 million tons (42.3%).

Indonesia is also the world's top nickel producer. According to USGS, global nickel production in 2023 was 3.6 million tons, with half, 1.8 million tons, produced in Indonesia. The Philippines followed with 400,000 tons (11.1%), New Caledonia 230,000 tons (6.3%), Russia (5.5%), and Canada (5%), showing a large gap.

Nickel production is highly concentrated, with the top five countries accounting for 78% of global production. Additionally, nickel is listed on the London Metal Exchange (LME) and exposed to speculative funds, causing significant price volatility. In March 2022, nickel futures prices briefly exceeded $100,000 per ton, leading to a temporary trading halt.

Indonesia became a nickel production powerhouse by using HPAL to cheaply produce high-purity nickel from laterite ores mined from open pits. Since 2018, Indonesia surpassed the Philippines to become the world's largest nickel producer. Chinese companies imported raw ore from Indonesia and produced nickel pig iron and stainless steel domestically in China.

In 2020, the Indonesian government banned the export of unprocessed nickel to promote domestic downstream industries. Nickel ore mined in Indonesia must be processed domestically into ferro-nickel, nickel pig iron, or nickel matte before export. Unable to export raw ore, Chinese companies such as Tsingshan Holding Group began building large-scale smelting facilities locally in Indonesia.

According to market research firm Oregon Group, as of 2023, 43 nickel smelting plants operate in Indonesia, with 28 under construction and 24 planned. Most planned or under-construction Indonesian nickel mining projects are funded by Chinese capital. According to a 2022 survey by Chinese market research firm Antaike, China and Indonesia together accounted for 65% of global nickel production.

A significant portion of nickel intermediate products produced in Indonesia is exported to China. China's nickel matte imports increased from 10,800 tons in 2020 to 300,500 tons in 2023, with Indonesia accounting for 93% of the total. During the same period, MHP imports surged from 336,000 tons to 1.32 million tons in 2023, with 63% originating from Indonesia.

China and Indonesia have faced criticism for disrupting the global nickel market. The rapid increase in Indonesian nickel production caused an oversupply. Coupled with a slowdown in electric vehicle growth since the second half of last year, nickel prices plummeted. Nickel prices fell 45% throughout 2023.

As profitability worsened, some mines closed. In February, Australian mining company Glencore decided to exit its nickel business in New Caledonia. New Caledonian nickel mining companies are reportedly suffering severe financial difficulties. Canadian mining company First Quantum announced in April it would suspend operations at the Ravensthorpe Nickel Operation in Western Australia for two years. This company had a 30% stake acquired by POSCO in 2021 to secure nickel supply rights.

Indonesia's nickel mining has also been criticized for environmental damage. Working conditions in Indonesian mines are reportedly poor. Western mining companies from Australia and Canada, harmed by cheap Indonesian nickel, distinguish between 'clean' and 'dirty' nickel and advocate for strengthening ESG (Environmental, Social, and Governance) standards in the nickel supply chain market.

Indonesia's pursuit of a free trade agreement (FTA) with the United States is also controversial. According to the U.S. Inflation Reduction Act (IRA), electric vehicles using batteries made with minerals extracted and refined in countries with an FTA with the U.S. qualify for tax credits. Indonesia is striving to receive IRA benefits through a separate mineral agreement equivalent to an FTA with the U.S.

If successful, domestic electric vehicle and battery manufacturers operating in Indonesia could also benefit. However, within the U.S., there is criticism that if Indonesia signs a mineral agreement with the U.S., it could provide incentives to China, contrary to the IRA's intent to exclude China from the electric vehicle supply chain.

Korean Companies Strengthen Nickel Supply Chains

Korea does not mine nickel domestically and relies entirely on imports. Previously, nickel was mainly imported as raw material for stainless steel, but with the growth of the secondary battery industry, efforts are underway to secure high-purity nickel for precursors. The main import sources are shifting from French New Caledonia, Australia, and Africa to Indonesia.

A representative Korean nickel mining investment is the Ambatovy nickel mine in Madagascar, Africa. In 2006, Korea formed the Korean Consortium (KAC) with Daewoo International (now POSCO International) and STX to acquire a 45.8% stake in the Ambatovy mine. The total investment at that time was a large scale of $1.1 billion (about 1.5 trillion KRW). The remaining 54.2% is owned by Japan's Sumitomo. Korea holds the right to purchase up to 30,000 tons annually.

POSCO has supplied nickel by importing and processing nickel ore from New Caledonia. POSCO and New Caledonia's SMSP established the joint venture SNNC in Gwangyang in 2006. SNNC imports about 30 million tons of nickel ore annually from New Caledonia and produces ferro-nickel. SNNC is currently building an additional nickel matte production plant for secondary batteries with an annual capacity of 20,000 tons.

Recently, POSCO has expanded its nickel supply chain to Indonesia. In February 2023, POSCO Holdings signed a memorandum of understanding (MOU) with China's Ningbo Liqin, marking its entry into the Indonesian nickel business. Ningbo Liqin established and operates Indonesia's first wet nickel smelting plant for secondary batteries in 2021. In May 2023, POSCO Group announced an investment of $441 million to build a nickel smelting plant on Halmahera Island, Indonesia. The plant plans to produce 52,000 tons of nickel matte annually starting in 2025.

LX International acquired a 60% stake in Indonesia's AKP mine for 133 billion KRW in January this year, securing management rights. The AKP mine is a nickel mine near the Morowali Industrial Complex on Sulawesi Island, Indonesia, with reserves of 51.4 million tons of ore.

EcoPro invested about $1 million in March to acquire a 9% stake in Green Eco Nickel, a nickel smelter operated by China's GEM in Indonesia. Located on Sulawesi Island, Indonesia, Green Eco Nickel produces about 20,000 tons of nickel annually. EcoPro also acquired a 9% stake in GEM's QMB nickel smelter in Indonesia in 2022.

Prime Minister Han Duck-soo (fifth from the left) attended the groundbreaking ceremony for the nickel smelter held at Korea Zinc in Ulju-gun, Ulsan, on the afternoon of November 15, 2023, and performed a ceremony signaling the start of construction with the guests.
(From the fourth from the left) Choi Yoon-beom, Chairman of Korea Zinc; Prime Minister Han; Kim Doo-gyeom, Mayor of Ulsan; Park Sung-min, member of the People Power Party. November 15, 2023.
Photo by Yonhap News

The nickel sulfate market for precursor raw materials is dominated by China. According to QY Research, as of 2021, seven of the world's top ten nickel sulfate producers were Chinese companies.

Korea's only company on the list is KEMCO, a subsidiary of Korea Zinc, ranked 8th. Japan's Sumitomo Metal Mining ranks 3rd, and Russia's Norilsk Nickel (Nornickel) ranks 5th. KEMCO plans to increase nickel sulfate production to 85,000 tons by 2028.

POSCO Future M Newsroom, The Key to the Electric Vehicle Market, Nickel, 2024.1.10
Korea Institute for International Economic Policy, [Issue Trend] Indonesia, Concerns over the Impact of Nickel Price Collapse on Downstream Industrialization Strategy, 2024.2.16
QY Research, Global Nickel Sulfide Market Outlook, 2022
WSJ, How China Came to Dominate the World's Largest Nickel Source for Electric Cars, 2023.7.5
Nikkei Asia, U.S. Senators Oppose Indonesia FTA That Paves Way for Nickel Subsidies, 2023.11.2
Mining.com, Indonesia and China Killed the Nickel Market, 2024.3.4
Mining.com, First Quantum to Shut Down Ravensthorpe Nickel Mine, 2024.4.29
POSCO Newsroom, POSCO Holdings Becomes First Domestic Company to Produce Nickel for Secondary Batteries Overseas, 2023.5.3
Korea International Trade Association, Analysis of Global Supply Chains for Key Raw Materials: Nickel, 2022.6.29