The proposed move would further entice battery OEMs and automotive companies to invest in the country

The Coordinating Minister of Maritime and Investment Affairs of Indonesia, Luhut Binsar Pandjaitan, revealed that the Southeast Asian country will propose a limited free trade agreement for nickel and other critical minerals exported to the USA. This would enable the companies involved to comply with the US Inflation Reduction Act (IRA) and benefit from tax credits associated with the legislation.

The IRA requires a certain proportion of materials used in batteries to be produced or assembled in North America or a free trade partner in an attempt to reduce its reliance on Chinese supply chains. It has been reported that Indonesia would seek to achieve a similar deal on EV battery minerals that the US quickly agreed with Japan at the end of March.

As Project Blue has discussed in a number of recent publications, Asian investment in several high-pressure acid leach (HPAL) operations and projects means that Indonesia is becoming an increasingly important hub for producing nickel suitable for processing into battery-grade material. Given Indonesia’s vast nickel reserves and ready availability of material, automotive companies have increasingly eyed up investment in the country. In early April, Ford signed a definitive agreement with PT Vale Indonesia and Huayou to each make equity investments in the US$4.5Bn-rated Pomalaa HPAL project for material that will ultimately end up in the automotive manufacturer’s expanding EV fleet. Ford’s US rival, Tesla, is also reportedly close to agreeing on a major deal to invest in a production facility in Indonesia.

Future deals between Indonesian companies, suppliers of battery materials and automotive manufacturers with exposure to the US market would almost certainly be facilitated by any potential Indonesia trade agreement. That said, trade data implies that the vast majority of nickel intermediates produced from Indonesia’s HPALs are exported to China for onward processing. This would seemingly disqualify this material from IRA tax credits. At least two of the operational HPALs in Indonesia were designed with plans to supply fully integrated nickel sulphate, with only Lygend’s Obi Island operation recently starting up production of this battery-grade material. Further investment in downstream processing capacity in Indonesia would keep more of this intermediate material within the country, aligning with the Indonesian government’s plans to develop a fully integrated EV production supply chain.