Indonesia desires to make an OPEC for this coveted steel

CNN Enterprise

Indonesia produces extra nickel than every other nation. As demand soars for batteries to energy the power transition, that presents an enormous alternative, and the archipelago nation of 276 million individuals intends to benefit from it.

With the electrical automobile revolution driving up demand for key battery metals akin to nickel, Indonesia has started lobbying for the creation of an OPEC-like group — however as an alternative of governing the export of oil, it could unite prime miners, permitting them to align their insurance policies.

The bid seems to be like an extended shot. Canada, one other prime producer, has mentioned it could be “very unlikely” to take part. The nickel market can be structured very in a different way than the marketplace for crude oil, with non-public companies moderately than nationwide corporations operating the present.

“I’m not convinced it’s going to be quite as amenable to a producer cartel,” mentioned Richard Bronze, an analyst at Power Points, a analysis agency.

However Indonesia’s marketing campaign is a sign of how the clear power transition may reshape geopolitics, as international locations sitting on high-value reserves of nickel, cobalt and lithium look to leverage their entry to in-demand commodities.

“This is a way they think they could be more relevant to the global energy market and geopolitics, and to be part of this emerging energy economy,” mentioned Jane Nakano, a senior fellow targeted on power safety and local weather change on the Middle for Strategic and Worldwide Research.

Within the 62 years since its founding, the Group of the Petroleum Exporting International locations, higher often known as OPEC, has at instances performed a vital position in shaping the worldwide oil market, most notably when its Arab members banned exports to the US and different international locations over their help for Israel in 1973. It drew the ire of the White Home in October for deciding to slash manufacturing, a coverage that it reaffirmed at a closely-watched assembly on Sunday.

However with world demand for fossil fuels set to peak, its political standing is much less sure — whereas nations with entry to metals and minerals important to the clear power transition could enhance their clout.

“The transition to clean energy means a shift from a fuel-intensive to a material-intensive system,” the Worldwide Power Company mentioned in a report printed in 2021, noting {that a} typical electrical automobile requires six instances extra minerals than a traditional automobile. It initiatives that EVs and battery storage programs would be the prime finish shoppers of nickel by 2040, displacing the chrome steel trade.

Indonesia stands to learn from this shift. After barring exports of nickel ore in 2020 — triggering a commerce dispute with the European Union — it rapidly developed its personal downstream processing capability with the assistance of international buyers. The nation now accounts for greater than 38% of worldwide refined nickel provide, in line with knowledge from market intelligence agency CRU Group. Its share continues to rise.

The nation “is expected to be the biggest source of growth in the years ahead,” mentioned Ewa Manthey, a commodities strategist at ING. “Production of nickel is surging to meet growing demand from the EV battery sector.”

Clouds of smoke escape from a nickel smelter furnace in an industrial area of Southeast Sulawesi, Indonesia.

Indonesia stop OPEC in 2009 and once more in 2016 as a result of disagreements about manufacturing cuts. However authorities leaders are actually arguing {that a} related cartel for nickel may very well be advantageous, boosting coordination with different prime producers. Russia accounts for nearly 20% of worldwide provides of the grade of nickel wanted for batteries, in line with Manthey. Canada and Australia are additionally huge gamers. The latter competes with Indonesia for the world’s greatest nickel reserves.

By teaming up with different producers, Indonesia may, in principle, have extra sway over costs. Regardless of the promising demand outlook, nickel costs on the London Metallic Alternate could be very unstable. After spiking earlier this 12 months following the invasion of Ukraine — at one level forcing the LME to halt buying and selling — they got here down sharply. There’s now surplus provide as the worldwide financial outlook has dimmed, reducing demand from makers of chrome steel.

“If they can control the supply a bit better, they could inflate the price of nickel a bit better,” mentioned Alistair Ramsay, vp of power metals at Rystad Power.

Individuals who monitor the nickel market are skeptical such an association is workable. That’s partly due to how the trade is about up. Whereas provide is concentrated amongst a couple of international locations, particular person companies are those accountable for output. That’s totally different from oil manufacturing in international locations like Saudi Arabia, Russia or the United Arab Emirates, for instance, which is dominated by state-owned companies.

“We believe that Indonesia’s idea to create an OPEC-style group for battery metals such as nickel would be difficult to realize because, unlike OPEC nations, the mining operations of major nickel producers are controlled by various private companies,” mentioned Jason Sappor, a senior metals and mining analyst at S&P World Commodity Insights.

Indonesia additionally doesn’t have political buy-in in the mean time. A authorities supply informed Reuters that Canada is “very unlikely” to affix the hassle.

Plus, Nakano of the Middle for Strategic and Worldwide Research isn’t satisfied it could assist Indonesia in the long run, because it may spook the international buyers the nation is courting to develop its mining sector.

OPEC’s affect has waxed and waned through the years. The emergence of the US as a significant producer of shale prior to now decade weakened its place. However the cartel has been again within the highlight for the reason that pandemic and Russia’s battle in Ukraine roiled power markets, amplifying the implications of its provide choices.

For international locations sizing up the clear power transition, it appears to current an alluring mannequin. The Guardian newspaper has reported that Brazil, Indonesia and the Democratic Republic of the Congo want to create an “OPEC for rainforests” to manipulate conservation efforts. There’s additionally been discuss that South American international locations akin to Argentina, Bolivia and Chile may create a lithium affiliation.

Whether or not such efforts to arrange will yield outcomes stays to be seen. However the proposals underscore how the hunt for assets that may energy the shift away from fossil fuels is more likely to create new political alliances.

That’s very true as competitors for assets between the US and China heats up. However different international locations which have direct entry to battery metals and different necessary minerals additionally desire a say.

“The metals market and its importance to the energy transition is something we’re all waking up to and adapting to how it’s going to work in practice,” Bronze mentioned.