2024-03-28 08:34:59
Indonesia wants to make an OPEC for this coveted metal - Democratic Voice USA
Indonesia wants to make an OPEC for this coveted metal

London
CNN Business
 — 

Indonesia produces more nickel than any other country. As demand soars for batteries to power the energy transition, that presents a huge opportunity, and the archipelago nation of 276 million people intends to take advantage of it.

With the electric vehicle revolution driving up demand for key battery metals such as nickel, Indonesia has started lobbying for the creation of an OPEC-like group — but instead of governing the export of oil, it would unite top miners, allowing them to align their policies.

The bid looks like a long shot. Canada, another top producer, has said it would be “very unlikely” to participate. The nickel market is also structured very differently than the market for crude oil, with private firms rather than national companies running the show.

“I’m not convinced it’s going to be quite as amenable to a producer cartel,” said Richard Bronze, an analyst at Energy Aspects, a research firm.

But Indonesia’s campaign is an indication of how the clean energy transition could reshape geopolitics, as countries sitting on high-value reserves of nickel, cobalt and lithium look to leverage their access 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,” said Jane Nakano, a senior fellow focused on energy security and climate change at the Center for Strategic and International Studies.

In the 62 years since its founding, the Organization of the Petroleum Exporting Countries, better known as OPEC, has at times played a crucial role in shaping the global oil market, most notably when its Arab members banned exports to the United States and other countries over their support for Israel in 1973. It drew the ire of the White House in October for deciding to slash production, a policy that it reaffirmed at a closely-watched meeting on Sunday.

But with global demand for fossil fuels set to peak, its political standing is less certain — while nations with access to metals and minerals essential to the clean energy transition may increase their clout.

“The transition to clean energy means a shift from a fuel-intensive to a material-intensive system,” the International Energy Agency said in a report published in 2021, noting that a typical electric vehicle requires six times more minerals than a conventional car. It projects that EVs and battery storage systems will be the top end consumers of nickel by 2040, displacing the stainless steel industry.

Indonesia stands to benefit from this shift. After barring exports of nickel ore in 2020 — triggering a trade dispute with the European Union — it quickly developed its own downstream processing capacity with the help of foreign investors. The country now accounts for more than 38% of global refined nickel supply, according to data from market intelligence firm CRU Group. Its share continues to rise.

The country “is expected to be the biggest source of growth in the years ahead,” said 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 quit OPEC in 2009 and again in 2016 due to disagreements about production cuts. But government leaders are now arguing that a similar cartel for nickel could be advantageous, boosting coordination with other top producers. Russia accounts for almost 20% of global supplies of the grade of nickel needed for batteries, according to Manthey. Canada and Australia are also big players. The latter competes with Indonesia for the world’s biggest nickel reserves.

By teaming up with other producers, Indonesia could, in theory, have more sway over prices. Despite the promising demand outlook, nickel prices on the London Metal Exchange can be very volatile. After spiking earlier this year following the invasion of Ukraine — at one point forcing the LME to halt trading — they came down sharply. There’s now surplus supply as the global economic outlook has dimmed, decreasing demand from makers of stainless steel.

“If they can control the supply a bit better, they could inflate the price of nickel a bit better,” said Alistair Ramsay, vice president of energy metals at Rystad Energy.

People who track the nickel market are skeptical such an arrangement is workable. That’s in part because of how the industry is set up. While supply is concentrated among a few countries, individual firms are the ones in control of output. That’s different from oil production in countries like Saudi Arabia, Russia or the United Arab Emirates, for example, which is dominated by state-owned firms.

“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,” said Jason Sappor, a senior metals and mining analyst at S&P Global Commodity Insights.

Indonesia also doesn’t have political buy-in at the moment. A government source told Reuters that Canada is “very unlikely” to join the effort.

Plus, Nakano of the Center for Strategic and International Studies isn’t convinced it would help Indonesia in the end, since it could spook the foreign investors the country is courting to develop its mining sector.

OPEC’s influence has waxed and waned over the years. The emergence of the United States as a major producer of shale in the past decade weakened its position. But the cartel has been back in the spotlight since the pandemic and Russia’s war in Ukraine roiled energy markets, amplifying the consequences of its supply decisions.

For countries sizing up the clean energy transition, it seems to present an alluring model. The Guardian newspaper has reported that Brazil, Indonesia and the Democratic Republic of the Congo are looking to create an “OPEC for rainforests” to govern conservation efforts. There’s also been talk that South American countries such as Argentina, Bolivia and Chile could create a lithium association.

Whether such efforts to organize will yield results remains to be seen. But the proposals underscore how the hunt for resources that will power the shift away from fossil fuels is likely to create new political alliances.

That’s especially true as competition for resources between the United States and China heats up. But other countries that have direct access to battery metals and other important minerals also want 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 said.

Source link: https://www.cnn.com/2022/12/05/business/indonesia-nickel-opec/index.html

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