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

On May 31, POSCO Group announced that POSCO Cngr Nickel Solution and C&P New Material Technology had each commenced construction of a nickel refining plant and a precursor production plant, respectively, at the Yeongilman 4 Industrial Complex in Pohang. POSCO Cngr Nickel Solution is an investment joint venture between POSCO Holdings and China's CNGR, with a 60:40 share structure. C&P New Material Technology is a joint investment between POSCO Future M and CNGR, with a 20:80 share split.

The nickel refining plant plans to source nickel matte, an intermediate material with about 70% purity, from CNGR's smelting affiliate, and then produce battery-grade high-purity nickel with 99.9% purity. The nickel produced here will then be sent to C&P New Material Technology as precursor raw material. POSCO Future M will use this precursor to manufacture cathode materials.

POSCO Group aims to strengthen the value chain of its secondary battery materials business—nickel, precursor, and 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 CNGR held at the Yeongilman 4 Industrial Complex in Pohang. (May 31, 2024) Photo by POSCO

Nickel, along with cobalt, manganese, and aluminum, is used as a key material in secondary battery cathodes. Battery capacity and power vary depending on the cathode material, and nickel is especially linked to energy density. Nickel is indispensable in ternary batteries such as NCM (Nickel·Cobalt·Manganese) and NCA (Nickel·Cobalt·Aluminum).

Historically, nickel has been used primarily in the manufacturing of stainless steel (STS). Around 70% of global nickel output goes into stainless steel. Yet recently, its use for batteries has been steadily increasing. The establishment of a nickel smelting plant by POSCO Group and China's CNGR represents an effort to secure nickel as a key in-house material for batteries.

Nickel, together with lithium, also influences the prices of cathode materials and batteries. Cathode materials account for about 50% of the cost structure in lithium-ion batteries. Among the raw materials that make up precursors for these cathode materials, nickel has the highest proportion. There are now commercially available high-nickel batteries with a 90% nickel composition in their cathodes.

According to Resource Information Service of the Korea Mine Rehabilitation and Mineral Resources Corporation, on June 4, nickel was trading at $18,900 per ton on the London Metal Exchange (LME). The price of nickel soared to $42,995 in March 2022 amid concerns over supply disruptions caused by the Russia-Ukraine war. However, since then, price plummeted to the $15,000s at the end of last year due to a supply glut from Indonesia, rising inventories, and stagnation in electric vehicle demand.

The surplus supply of nickel is expected to persist for some time. Jason Sappor, Senior Analyst at S&P Global, stated, "Despite recent production disruptions in New Caledonia, increased output from Indonesia and China is projected to result in a global primary nickel market surplus of 120,000 tons in 2024." He further explained, "Since late 2023, total nickel inventories on the LME have surged by 42.7%. With the ongoing oversupply in the market, the potential for price growth will be limited for the rest of this year."

Battery-Grade Nickel: A Different 'Class'

Nickel (Ni) is a metallic element with a strong silvery-white luster, resistant to oxidation in air, making it widely used in coatings and alloys. Due to its resemblance to silver and high corrosion resistance, nickel is also used as a material for coins in many countries. In the United States, the 5-cent coin is even called a "nickel."

Nickel is present in the Earth's crust at a concentration of 80ppm, relatively abundant compared to other non-ferrous metals like copper (50ppm), zinc (75ppm), and cobalt (20ppm). However, it remains relatively expensive, as pure nickel is difficult to separate and it takes more than a decade to develop a commercially viable mine.

Image source: Korea International Trade Association

Nickel ore occurs in two main types: sulfide and oxide (laterite). Globally, oxide ore represents about 60% of reserves, while sulfide ore accounts for 40%. Major sulfide ore deposits are found in Russia (Norilsk), Canada (Sudbury), Australia (Nickel West), and Gansu Province in China. Sulfide ores, located deep underground, are costly to mine but contain higher nickel content (1.5–2.5%) and have a brownish hue due to sulfur content.

Oxide ores are mainly found in tropical regions such as Indonesia, the Philippines, Papua New Guinea, New Caledonia, and Brazil. These ores are near the surface and contain high moisture content, making extraction easier, but with lower nickel content (1.0–1.8%) compared to sulfide ore.

Oxide ores can be further classified as limonite (upper soil layer; nickel content 1.3% or less) and saprolite (lower soil layer; nickel content 1.8% or more). High-nickel saprolite ore is refined by pyrometallurgy using electric furnaces, whereas low-nickel limonite ore is refined by hydrometallurgy, such as High-Pressure Acid Leaching (HPAL). Pyrometallurgy refers to a method in which heat is applied at high temperature to extract metal, while HPAL involves injecting sulfuric acid under strong pressure to increase nickel purity.

Notably, even limonite—which was previously overlooked due to its low nickel content—can now yield high-purity nickel via HPAL, dramatically increasing global nickel production.

Meanwhile, nickel is classified by purity: Class 1 (99.8% purity or higher) and Class 2 (less than 99.8% purity). Only Class 1 nickel is used for battery cathode materials. Depending on physical form, Class 1 nickel is categorized as cathode, briquette, pellet, or powder. Class 2 nickel includes products such as ferronickel (FeNi) and nickel pig iron (NPI).

In the past, high-grade sulfide ore was mainly processed into Class 1, and oxide ore into Class 2. Recently, however, abundant and easily mined oxide ore is being processed into battery-grade high-purity nickel via HPAL. Through hydrometallurgical process, intermediates such as nickel matte (containing 55–75% nickel), mixed hydroxide precipitate (MHP), or mixed sulphide precipitate (MSP) are produced and then further processed into battery precursor-grade nickel sulfate.

MHP and MSP typically contain 34–55% nickel and minor amounts of cobalt (1–4.5%). While MSP uses toxic hydrogen sulfide (H2S) gas in production, MHP is relatively safer and more compatible with Class 1 nickel production processes—hence its growing market adoption.

Nickel sulfate, used as a raw material for battery cathodes, is an inorganic compound formed by dissolving nickel in sulfuric acid and evaporating the solution, exhibiting a green color. Precursor materials for ternary batteries such as NCM and NCA are produced by blending nickel, cobalt, and manganese in precise proportions and then mixing with lithium. Nickel sulfate is the core raw material for these precursors.

Nickel sulfate

Traditionally employed in plating solutions and catalysts, nickel sulfate demand has surged as it became a key raw material for lithium-ion batteries. Research firm QY Research estimated that in 2022, 77% of all nickel sulfate produced worldwide was consumed as precursor raw material for batteries, and that ratio is expected to exceed 90% by 2028.

'Nickel Production No.1': The Chinese Shadow Behind Indonesia

According to the United States Geological Survey (USGS), global nickel reserves are about 130 million tons, with Indonesia holding the largest share—approximately 55 million tons (42.3%).

Indonesia is also the world's largest producer of nickel. In 2023, USGS reported global nickel production of 3.6 million tons, half of which—1.8 million tons—originated from Indonesia. The Philippines followed with 400,000 tons (11.1%), New Caledonia produced 230,000 tons (6.3%), while Russia held 5.5% and Canada 5%, highlighting the significant gap.

The concentration is so pronounced that the top five countries account for 78% of global nickel production. Nickel, which is listed on the London Metal Exchange (LME) and is exposed to speculative funds, also experiences significant price fluctuations. For instance, in March 2022, nickel futures exceeded $100,000 per ton, resulting in a temporary halt in trading.

Indonesia's rise as a nickel powerhouse is due to the ability to cost-effectively mass-produce high-purity nickel from surface-mined oxide ores via the HPAL process. Indonesia became the world's largest nickel producer, overtaking the Philippines in 2018. Chinese companies used to import raw ore from Indonesia and process it into nickel pig iron, stainless steel, and other products in China.

In 2020, the Indonesian government banned the export of unprocessed nickel ore to foster its domestic downstream industry, requiring all extracted ore to be processed within the country as ferronickel, nickel pig iron, nickel matte, or similar forms before export. Unable to source raw ore from Indonesia, China's Tsingshan Holding Group and other Chinese firms began building large-scale smelting facilities within Indonesia.

According to research firm Oregon Group, as of 2023 there are 43 operational nickel smelters in Indonesia, with 28 more under construction and another 24 still in the planning phase. Most of the ongoing and planned Indonesian nickel mine projects are backed by Chinese capital. In 2022, Chinese research institute Antaike reported that the combined share of China and Indonesia accounted for 65% of global nickel output.

A significant portion of Indonesia's nickel intermediates are exported to China. China's annual imports of nickel matte soared from 10,800 tons in 2020 to 300,500 tons in 2023, with Indonesia accounting for 93% of total imports. Over the same period, China's MHP imports skyrocketed to 1.32 million tons, of which 63% were sourced from Indonesia.

Some critics argue that China and Indonesia have disrupted the global nickel market. The rapid increase in Indonesian production has led to a widespread supply glut. With demand for electric vehicles slowing in the second half of last year, nickel prices collapsed, sliding 45% over the entirety of 2023.

As profit margins have deteriorated, some mines have closed. For example, in February, Australian mining company Glencore decided to exit the New Caledonian nickel business, and New Caledonian nickel mines reportedly face acute financial distress. Canada's First Quantum Minerals announced in April it would suspend operations for two years at the Ravensthorpe Nickel Operation in Western Australia—a company in which POSCO acquired a 30% stake in 2021 to secure nickel supply rights.

There is also criticism that Indonesian nickel mining causes environmental damage, and that labor conditions at Indonesian mines are harsh. Western mining firms in Australia and Canada, which have been negatively affected by cheap Indonesian nickel, are calling for the global nickel supply chain to be divided into "clean" and "dirty" nickel and for the adoption of stronger ESG (environmental, social, and governance) standards.

Indonesia's push to negotiate a Free Trade Agreement (FTA) with the United States is another source of controversy. The U.S. Inflation Reduction Act (IRA) allows buyers of electric vehicles to claim tax credits if the battery minerals are extracted or processed in a country that has signed an FTA with the U.S. Indonesia is seeking a special minerals agreement with the United States, equivalent to an FTA, to qualify for these IRA benefits.

If achieved, this could enable Korean automakers and battery producers operating in Indonesia to benefit as well. However, critics in the U.S. argue that such an agreement would contradict the intent of the IRA—which aims to exclude China from the supply chain—by potentially providing incentives to China.

Korean Companies Bolster Nickel Supply Chains

Korea has no domestic nickel mines and must import all the nickel it needs. While imports were once mainly for use in stainless steel, the country is now seeking to secure battery-grade, high-purity nickel for the secondary battery industry. Main sources of imports have shifted from French New Caledonia, Australia, and Africa toward Indonesia.

Korea's flagship nickel mine investment is the Ambatovy mine in Madagascar. In 2006, Korea Mine Rehabilitation and Mineral Resources Corporation, along with Daewoo International (now POSCO International) and STX, formed the Korea Consortium (KAC) to acquire a 45.8% stake in Ambatovy. The investment totaled $1.1 billion (about 1.5 trillion won). The remaining 54.2% belongs to Japan's Sumitomo Metal Mining. Korea retains the right to purchase up to 30,000 tons per year.

POSCO has supplied nickel by importing and processing nickel ore from New Caledonia. In 2006, POSCO and New Caledonia's SMSP established SNNC, a joint venture in Gwangyang. SNNC imports about 30 million tons of nickel ore from New Caledonia each year and produces ferronickel. SNNC is also building a new plant with annual capacity to produce 20,000 tons of battery-grade nickel matte.

Recently, POSCO has expanded its supply chain into Indonesia. In February 2023, POSCO Holdings signed a memorandum of understanding (MOU) with China's Ningbo Richin and entered the Indonesian nickel business. Ningbo Richin was the first company in Indonesia to establish and operate a hydrometallurgical plant for battery-grade nickel starting in 2021. In May 2023, POSCO announced it would invest $441 million to build a nickel smelting plant on Halmahera Island, Indonesia, with plans to produce 52,000 tons of nickel matte annually starting in 2025.

In January this year, LX International acquired a 60% stake in Indonesia's AKP mine for 133 billion won, securing management rights. The AKP mine, located near the Morowali Industrial Park on Indonesia's Sulawesi Island, has measured ore reserves of 51.4 million tons.

In March, Ecopro invested about $1 million to acquire a 9% stake in the GreenEcoNickel refinery operated by China's GEM in Indonesia. Located on Sulawesi Island, Indonesia, GreenEcoNickel produces about 20,000 tons of nickel annually. In 2022, Ecopro also acquired a 9% stake in QMB, another Indonesian nickel plant operated by GEM.

Prime Minister Han Duck-soo (fifth from the left) attended the groundbreaking ceremony for the nickel refinery held at Korea Zinc in Ulju-gun, Ulsan, on the afternoon of November 15, 2023, and performed a ceremony with guests to mark the start of the construction. (From the fourth left) Yoonbeom Choi, Chairman of Korea Zinc, Prime Minister Han, Du-gyeom Kim, Mayor of Ulsan, and Sungmin Park, member of the People Power Party. November 15, 2023, Yonhap News Agency

China holds a dominant position in the nickel sulfate market for precursor production. According to QY Research, as of 2021, seven of the world's top ten nickel sulfate producers are Chinese companies.

The only Korean company in the top ten is KEMCO, a subsidiary of Korea Zinc, which ranks eighth. Japan's Sumitomo Metal Mining is third, and Russia's Nornickel (Norilsk Nickel) is fifth. KEMCO aims to boost its nickel sulfate production to 85,000 tons by 2028.

POSCO Future M Newsroom, The Key to the EV Market: Nickel, Jan 10, 2024;

Korea Institute for International Economic Policy, [Issue Trend] Indonesia: Concerns over Downstream Industrialization Strategy due to a Plunge in Global Nickel Prices, Feb 16, 2024;

QY Research, Global Nickel Sulfate Market Outlook, 2022;

WSJ, How China Came to Dominate the World's Largest Nickel Source for Electric Cars, July 5, 2023;

Nikkei Asia, U.S. senators oppose Indonesia FTA that paves way for nickel subsidies, Nov 2, 2023;

Mining.com, Indonesia and China killed the nickel market, Mar 4, 2024;

Mining.com, First Quantum to shut down Ravensthorpe nickel mine, Apr 29, 2024;

POSCO Newsroom, POSCO Holdings: The First Korean Company to Produce Battery-Grade Nickel Overseas, May 3, 2023;

Korea International Trade Association, Analysis of Global Supply Chains for Strategic Raw Materials: Nickel, June 29, 2022

This content was produced with the assistance of AI translation services.