The nickel mining industry in Indonesia has reacted negatively to the government’s increase of mining royalties from 10% to rates that vary from 14-19%. The change took effect at the start of May. The government is looking at these increased royalties as a source of needed revenue to fund the ambitious programs initiated by President Subianto. For example, he started a program to offer free meals for pregnant mothers and children. He has also established a sovereign wealth fund for the country.
The minerals targeted for royalty increases include copper, bauxite, nickel, gold, tin, among others.
While the mining industry is complaining about these increased royalties, the government insists that the policy will be beneficial to the country and could even make the mining industry more sustainable.
Mining firms are particularly concerned given the timing of the rate increase. The trade war between China and the U.S. has brought uncertainty to the commodities sector, and economic growth is being hampered by these macroeconomic factors. For nickel, the rate increase couldn’t have come at a worse time.
For starters, the global market for the mineral has been oversupplied, which has contributed to a price slump. In April, nickel plummeted to just over $15,000 a ton on the LME. This price level was last seen when the Covid-19 pandemic brought economies around the world to their knees. The drop on the LME last month was triggered by the 90-day halt to the implementation of the U.S. import tariffs announced by President Trump.
Nickel’s market has also suffered due to a slowdown in EV uptake. Nickel is key in the manufacture of Li-ion EV batteries. When sales slowed, so did the demand for nickel by battery makers like CATL. To compound matters further, alternative battery chemistries that require less or no nickel have also been developed, reducing the demand for nickel even more.
Nickel miners are therefore looking at the increase in royalties as another headwind for the industry. They say margins could be squeezed so much that some miners could end up reducing their workforce or even closing, especially for the smaller operators. These views were expressed by Hendra Sinadia, the country’s mining association executive director.
The government remains optimistic that the higher royalties could have the effect of reducing nickel production, which could in turn reduce the glut on the market and therefore shore up prices.
For companies like Platinum Group Metals Ltd. (NYSE American: PLG) (TSX: PTM) with planned mining operations expected to yield nickel as a by-product of gold production, the developments in Indonesia could be of interest since they may have an impact on the global market for various minerals.
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