Korea hopes to benefit from U.S.-Indonesia mineral agreement

[Courtesy of LX International]

As the United States and Indonesian governments are set to negotiate a deal that will secure a supply chain for nickel, a key mineral in electric vehicle (EV) batteries, South Korean companies that have invested in the key regions of Indonesia, the world’s top nickel producer, are hopeful that their investment will reap results. Indonesia has been promoting industrial developments across the entire nickel production value chain and is actively attracting overseas companies with supportive tax policies and infrastructure. It now remains to be seen whether the Korean companies that have recently made large-scale investments in Indonesia as part of their efforts to build a secondary battery value chain will benefit from the signing of the U.S.-Indonesia mineral agreement.

According to major foreign media outlets, U.S. President Joe Biden and Indonesian President Joko Widodo will meet at the White House on Monday local time to begin discussions on signing a bilateral key minerals agreement that will allow nickel, a key mineral for EV batteries, to be eligible for tax breaks under the Inflation Reduction Act (IRA).

The IRA is aimed at encouraging more North American production and assembly in the EV sector while reducing reliance on Chinese minerals in batteries.

Indonesia has the world’s largest nickel reserves and production but has not been able to benefit from the IRA as it was not a free trade partner to the United States and, for this reason, has been hoping to sign a separate key minerals agreement that would grant it free trade agreement (FTA) partner status. For its part, the United States has also been looking for a stable supply source of nickel to lead the EV industry.

If the U.S. and Indonesian leaders agree to sign a key minerals agreement, Korean companies are expected to benefit. POSCO Holdings Inc., for example, is planning to break ground this year for a mixed hydroxide precipitate (MHP) nickel matte production plant with an annual nickel content capacity of 52,000 tons in Weda Bay Industrial Park on Indonesia’s Halmahera Island, in an effort to form a nickel supply chain. The company has also signed an investment agreement with China’s Ningbo Richin Industry & Trade Co. to jointly set up a nickel intermediate plant on Sulawesi Island in Indonesia.

This month, LX International Corp.’s board of directors also approved a proposal to acquire a 60 percent stake in the AKP nickel mine in the Sulawesi region by investing 133 billion won ($100.3 million).

Fellow Korean company STX Corp. signed an agreement to invest a 20 percent stake in a nickel mine in Sulawesi with an Indonesian local partner in August 2023. Ecopro Co. signed an agreement this month to invest in the second unit of QMB, a nickel smelter operated by China’s GEM Co. in Indonesia. STX plans to invest a total of $86 million in the second unit of QMB, following its investment in the first unit last year, in which it acquired a 9 percent stake and secured an annual supply of about 6,000 tons of nickel.

It remains to be seen if the Biden administration will exclude the companies associated with Chinese businesses from the IRA tax credits.

The administration is currently known to be considering ruling out the products processed by Chinese companies using Indonesian nickel from the IRA benefits.