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The US has recently engaged in initial talks with Indonesia, regarding a potential partnership with the Southeast Asian country for electric vehicle (EV) metals and minerals.

The talks were proposed by Indonesia, following the US Inflation Reduction Act bill, which has put aside about $400 million (€374 million) for increased US energy efficiency.

The discussions are primarily focused on nickel at the moment, with a long-term aim of forming a reliable supply chain for electric vehicle metals. The US has very few reserves of nickel, with only one nickel mine in Michigan – the Eagle Mine – which is also expected to wind down production in the next few years.

Proposed new nickel mines in the US, such as Talon Metals’ Minnesota mine, are also facing strong protests from local and indigenous communities. As such, the US government is facing more ire for not making it easier for domestic suppliers to get nickel mine permits.

Indonesia, on the other hand, is the biggest producer of nickel worldwide, accounting for about 1.6 million tonnes in 2022, followed by the Philippines and Russia. The country also has about 21 million tonnes of nickel reserves.

Additionally, it also has cobalt reserves, another key EV battery metal, and has recently invested more in its cobalt mining and processing facilities. It is also one of the largest producers of tin, which is used for boosting electric vehicle performances.

Ecological concerns

However, nothing has been formalised as yet, with the US worried about the potential environmental cost of nickel mining.

Currently, Indonesia also does not have very robust environmental, social and governance (ESG) regulations for companies. This may make it easier for companies to bypass safe, responsible and sustainable mining practices.

Nickel mining causes significant deforestation, air and water pollution. It has also been linked to several respiratory and other health issues for miners, mostly due to toxic metal dust.

The process requires nickel slag to be eliminated very carefully, often by burying it deep or covering it with clay. In some cases, slag can be used for drainage purposes.

These environmental costs have led to other major nickel producing countries such as the Philippines and Australia closing or phasing out a number of nickel mines in the past few years.

However, it has done little to curb nickel demand for electric vehicles, with producers now having to balance increased demand with sustainable mining practices.

The need for increased sustainability has led to new, bigger nickel processing plants being set up, even as mines are shutting down.

Tesla has been instrumental in generating more nickel demand, with Elon Musk going as far as offering a massive contract for sustainable miners.

Another issue is that high-grade nickel ore, or nickel sulphate, also known as Class 1 nickel, is in the highest demand, despite not being very widely produced. Most of the nickel mined worldwide is nickel pig iron, or lower grade nickel. This requires much more processing, hence the new processing plants being set up.

The nickel market itself has seen its fair share of turbulence in the past few years. Indonesia banned nickel exports in 2020 to encourage more manufacturers to process the metal domestically, which also led to more foreign investment in Indonesia.

The London Metal Exchange nickel short squeeze last year, which led to nickel trading being banned for some time, also derailed the market further.

The Russia-Ukraine war further contributed significantly to the sudden surge in demand for nickel, as Russia is one of the biggest nickel producers. Hence, with sanctions raining down on the country, its biggest nickel miner Nornickel was considerably restricted in its transportation and export of the metal.