Every nickel ore transaction inside Indonesia, from the mine to the smelter, has to be priced off a number that a trade association publishes once a month.
The association is Meidy Katrin's. It was founded on 6 March 2017, has close to 100 member companies drawn from mining, mining contracting, trading, smelting and processing, and it spent its first three years building the formula. In 2020 the formula went into regulation as the nickel ore benchmark price. Katrin releases the new figure each month once the ministry has signed it.
She believes it is the only mining association in the world that sets its own price, and she is direct about why it exists. Before it, domestic transactions had no benchmark at all. With it, the mining companies keep more of the margin, and that margin is what pays for the community programmes, for the local society around the pit, and for the obligations that fall due after mining stops.
The next target is the export price, and on that she gets impatient.
Indonesian nickel shipped to China, or anywhere else, is priced off the London Metal Exchange or off Shanghai Metals Market assessments. Her objection is not technical. Come on, she says, this is our product. Why must another country check the price for something that belongs to us.
So the association has been working, with government approval, on what she calls the Indonesia Nickel Index. She said it would launch early in 2024.
A smaller reform landed the month before this conversation, recorded in Budapest. Producers used to apply annually for permission to produce and sell. That application now runs for three years. Indonesia has 47 critical minerals plus coal, so the paperwork multiplies quickly, and the point of the change was to make the process simpler for investors and easier for the government to control at the same time.
Sixty smelters, and two ways to make nickel
The reason any of this matters is the speed of the downstream build.
Katrin counts 60 smelters already in operation, producing nickel pig iron, ferronickel and matte destined mostly for stainless steel. Alongside them sit five plants making battery materials, nickel sulphate among them. All of it inside five years, which she treats as the argument that settles the question of whether the policy worked.
The two groups are not variations on the same plant. The pyrometallurgical route takes higher grade saprolite ore. The hydrometallurgical route takes low grade limonite. Indonesia has both, in laterite deposits that are, as she points out, nothing like the sulphide ores worked in Canada or elsewhere, and cheaper to produce from.
That difference in geology is the first half of her answer to why the investment came. The second half is that if you build a factory at the source of the raw material, you start the competition in front.
What it cost to attract the money
The export ban on raw ore was the trigger. The stated purpose was value added: stop selling the rock, make something in the country, create the jobs.
What the government put on the table afterwards, Katrin describes half joking as too many things for free. Tax holidays. Tax allowances. A super deduction tax. A network of special economic zones with further benefits from the industrial parks inside them. Her own reading of the logic is that investors are let through the risk period with the profit intact, and taxed at the second stage.
On top of the incentives she claims the lowest land acquisition prices and the lowest labour cost of any comparable country, cheaper than China, Singapore or Australia.
It worked well enough that she now wants it to slow down.
The number that worries her
More than 130 companies are heading towards downstream plants in Indonesia. Katrin has done the arithmetic on what that would consume, and the figures she gives are these: 101 million tonnes of ore last year, 170 million this year, more than 400 million within two years.
She is not confident the resource covers it.
The oversupply is already visible in the price, and she has been made to answer for it. She spent LME Week being asked what had happened in Indonesia and why her country had crashed the market. Her answer was the 60 operating plants and the volume coming out of them. Illegal mining is on her list of unsolved problems too, though she notes it is not an Indonesian invention.
Hence the position she takes on supply chain control, which is to complete as much of the chain as possible inside the country rather than let it run past her.
New players, and the argument with the Inflation Reduction Act
The United States has kept Indonesian nickel outside its clean vehicle incentives, citing environmental performance and Chinese control of the sector. Katrin's response to each half is different.
On the environment she does not argue that the record is good. She argues about the clock. European and American companies have had 50 or 100 years to work out good mining practice, proper closure, proper treatment of the communities involved. Indonesia started five years ago. Her request is to be taught rather than rejected, and in practice that means taking ESG systems from companies that already run them and testing whether they fit Indonesian conditions before adopting them, because the conditions genuinely are different.
The scale of the administrative problem is part of that. 17,000 islands and almost 280 million people, with none of the connectedness of Europe or China, and a presidential election coming that will bring a new programme and new regulation with it.
Her answer to that instability is the association itself, which she describes as a bridge running in both directions: what the industry needs from government, and what the government needs from the industry. It is also the mechanism she uses to push members towards good mining practice, which is a slower business than publishing a price.
And there is the fact that the mines are not in Jakarta. They are in the villages, and in her formulation the people there own the treasure, not the companies. The test she sets is before and after: what those villages had before the mine and the smelter arrived, and what they have now.
On the China half of the criticism she gives no ground at all. Thanks to China, she says. Without Chinese capital, nobody would have looked at Indonesia, and the downstream sector would not exist.
She is comfortable with the beginner label as long as the trajectory is understood. Looks like we are a kindergarten, she says. A fast growing one.
Where she will not accept the label is on position. Indonesia is first in nickel resources, eight of the world's top ten nickel producers operate there, and it is now setting its own price. On battery raw materials and on stainless steel materials both, she thinks the leadership question is already answered.
What she tells an investor to do first
Asked what someone should actually do if they want to build in Indonesia, Katrin gives three things in order, and the order is the advice.
Find the raw material. Without it you are nothing.
Find the partner, meaning a person who knows the regulation, knows the location and knows how to conduct an engagement with government, which she says plainly is not easy.
Then study the specific area, because cost differs by area, local government differs by area, and so does the local society. There is no single Indonesian answer to any of those.
The ownership rules are worth knowing before the plane ticket. A foreign company can hold at most 49% of a mining business. A factory is different: 100% foreign ownership is allowed, provided the board of directors and the operational leadership are local.
Then there is the question of what to build, on which the secretary general of the nickel miners association says something that trade associations do not usually say to prospective investors.
If it is pyrometallurgy, nickel pig iron and matte, stop. The market is oversupplied and she is not sure the ore will stretch.
Hydrometallurgy, for nickel sulphate and battery material, is welcome.
This piece draws on the full conversation, which is available with a complete transcript on the episode page.