China is anticipated to dramatically increase investment in alternative sources of nickel supply and to expand its position throughout the entire metal supply chain; this guidance comes from analysts after the United States signed off on a new trade deal with Indonesia, which will give U.S. Companies unrestricted access to Indonesian industrial commodities.
With nickel being one of the most important metals used to produce stainless steel and some electric vehicle batteries, the recent agreement comes at a time when nickel is increasingly becoming central to global supply chain activity. Analysts believe this new trade agreement will significantly disrupt Indonesian nickel supply and distribution channels, particularly as it allows the United States to pursue supplier diversification away from China.
“This (U.S.-Indonesia agreement) is very significant and China will not be happy about it,” said Alicia Garcia-Herrero, Asia-Pacific Chief Economist at Natixis, adding that China already has leverage over supply chains through its ownership of major nickel mining operations in Indonesia and could retaliate by slowing the pace of technology transfers, or scaling back or ceasing investment in Indonesia.
Indonesia has rapidly become an important market for nickel, providing more than 60% of the world’s nickel production, according to a recent Goldman Sachs report; Additionally, the growth and expansion of Indonesia’s nickel processing capabilities have been directly linked to the influx of Chinese investments into Indonesia and are expected to continue to grow through new partnerships with U.S. Companies.
The surge in global nickel prices – which increased by over 30 % from mid-December through January – has largely been attributed to Indonesia’s decision to set limits on ore mining activity. Moreover, due to the way Indonesian shipments of nickel ore are controlled, the analyst for Goldman Sachs commodity markets, Ms. Lavinia Forcellese, explained that any small changes to Indonesian policy or approvals can greatly affect the global balance of supply and therefore impact prices as well.