Indonesia is an international hub for critical mineral production and reserves, with diverse resources including nickel, iron, bauxite, silver, tin, gold and copper. The country’s mining industry has extensive nickel reserves in the Maluku, Sulawesi and Kalimantan islands. Nickel mined in the country is suitable for the production of electric car and stainless-steel batteries.
During last year’s ASEAN Summit, U.S. Vice President Kamala Harris and Indonesian President Joko Widodo discussed the potential of a critical minerals free-trade agreement.
The free-trade agreement would permit America to receive more nickel for electric car batteries from Indonesia, while allowing the latter country to benefit from tax incentives for electric car purchases based on the Inflation Reduction Act. The success of this free-trade agreement is an objective for U.S.-Indonesia relations under the Comprehensive Strategic Partnership, established in November last year.
Despite this, some senators penned a letter addressed to the U.S. trade representative, energy secretary, commerce secretary and treasury secretary voicing their concerns about the agreement. In the letter, they highlighted issues such as Chinese dominance of Indonesia’s mining industry, weak labor protections in the country, lack of community engagement among Indonesian and Chinese workers, and environmental implications.
In 2019, Indonesia implemented a full export ban of raw nickel ore, with the president encouraging foreign direct investment to help develop smelters and processing facilities in the country.
This prompted Chinese companies to invest about $30 billion in critical minerals-processing facilities, allowing Indonesia to use this tech and capital to become the leading force in the nickel industry globally. However, this also allowed Chinese-invested smelters to dominate the industry, leading to major environmental complications and considerable pushback from local communities.
It doesn’t help that most Chinese workers occupy technical and managerial positions, while Indonesians make up the main workforce.
Additionally, buyers concentrated in China disproportionately influence a great extent of this nickel market, which is really only catered and sold to China. This allows Chinese companies to monopolize the demand for Indonesian nickel, pressuring domestic miners to sell nickel for below-market price. This, in turn, causes a significant drop in profit for Indonesian companies, forcing them to cut costs toward environmental and safety practices.
Policymakers in Indonesia should demand more accountability from these companies for environmental damage and accidents.
If Chinese companies resist these demands, Indonesia could use this as an opportunity to accelerate ongoing investments and/or seek investment from nations with higher environmental and labor standards, such as the United States, South Korea or Japan.
Diversifying investments would help Indonesia decrease the monopolistic influence of Chinese companies while also creating a fairer and competitive market environment, fostering better environmental and labor practices.
These internal challenges plaguing the Indonesian nickel industry build a strong case for North American-based exploration companies such as Fathom Nickel Inc. (CSE: FNI) (FSE: 6Q5) (OTCQB: FNICF) that are in jurisdictions where the highest standards regarding human rights, ethics and environmental consciousness are enforced. Supplies from these regions could soon dominate the Western market in lieu of materials from regions dominated by Chinese companies.
NOTE TO INVESTORS: The latest news and updates relating to Fathom Nickel Inc. (CSE: FNI) (FSE: 6Q5) (OTCQB: FNICF) are available in the company’s newsroom at https://ibn.fm/FNICF
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