Indonesia’s pledge to be more than a raw-materials supplier is set to pile pressure on China’s steel to electric vehicles industries that are already grappling with rising cost volatility.
The Southeast Asian country said Wednesday it’s studying a progressive levy on exports of nickel pig iron and ferronickel that could be imposed as soon as this year. Concerns about lower shipments from the world’s biggest nickel supplier sent the London Metal Exchange benchmark surging to the highest in more than a decade. That risks increasing costs for Chinese stainless steel mills -- the top users -- as well as joining a raft of commodities that are becoming an increasing headache for battery makers as prices climb.
Read more: Metals Traders Are Bracing for the Next Big Supply Squeeze
Indonesia has played a key role in global markets as a bulk materials supplier, but President Joko Widodo has pledged to eventually stop exports of all raw commodities to turn the country into a major manufacturing hub for electric transportation. The government signaled in September that nickel restrictions were looming, and has said it will halt bauxite and copper ore shipments, with the ultimate goal of producing all EV components including lithium batteries onshore.
The core concern for Chinese industries is their reliance on Indonesia for supply of ferronickel, a semi-refined product used to make stainless steel. The country gets about 84% of its imports from Indonesia, with Japan, Colombia, Myanmar and New Caledonia accounting for the rest.
While the specifics such as timing and tax rates remain uncertain, Chinese mills will have to accept the “reality” of higher costs due to the industry’s reliance on Indonesia, said Celia Wang, an analyst with researcher Mysteel Global. Higher nickel prices also bring additional pain to battery producers, which are already “very uncomfortable” with high raw materials costs, she said.
