WEBVTT - How Indonesia and China Cornered the Nickel Market 0:00:20.360 --> 0:00:23.720 Hello, and welcome to another episode of the All Thoughts Podcast. 0:00:23.800 --> 0:00:25.160 I'm Tracy Alloway. 0:00:24.880 --> 0:00:26.639 And I'm Joe. Why isn'tal Joe? 0:00:26.680 --> 0:00:28.760 I have a joke for you, A very special joke. 0:00:29.120 --> 0:00:29.440 Go on. 0:00:30.000 --> 0:00:32.720 Why did Anglo American write down it's nickel. 0:00:32.440 --> 0:00:35.240 Business because it was only worth five cents? 0:00:36.159 --> 0:00:39.080 That's so good. That's actually okay. My line was because 0:00:39.120 --> 0:00:41.400 it was a few cents short of a viable return. 0:00:41.479 --> 0:00:45.280 But yeah, same thing. That's really good. 0:00:45.800 --> 0:00:47.840 But you know what the thing is is my daughter 0:00:47.880 --> 0:00:50.839 has gotten really into reading me jokes, and I like, 0:00:50.920 --> 0:00:53.320 she has all these joke books. Like my brain is 0:00:53.600 --> 0:00:56.120 you can anticipate and like see where these all are going? 0:00:56.480 --> 0:00:56.880 All right? 0:00:57.000 --> 0:01:00.840 Well, on a serious note, Anglo American rejected that bid 0:01:00.880 --> 0:01:03.480 from BHP Bulletin, which is something that came up in 0:01:03.520 --> 0:01:08.160 our conversation with Jeff Curry recently, and as a result 0:01:08.200 --> 0:01:12.280 of that, it is now undertaking this formal process of 0:01:12.319 --> 0:01:16.479 selling off a bunch of assets and exploring options for 0:01:16.640 --> 0:01:21.080 its nickel operations. And one thing that I hadn't realized 0:01:21.680 --> 0:01:25.560 is just how much the nickel market has actually changed 0:01:25.680 --> 0:01:29.480 in recent years. Like I sort of heard some rumblings 0:01:29.480 --> 0:01:34.800 of it, but I read something recently that really crystallized 0:01:34.959 --> 0:01:36.959 a lot of what's been happening in that market, and 0:01:37.040 --> 0:01:38.080 it is phenomenal. 0:01:38.560 --> 0:01:41.080 I have to say, I have not given any thought 0:01:41.200 --> 0:01:43.920 about how much the nickel market has changed, in part 0:01:43.959 --> 0:01:46.200 because I never at and you point hit some conception 0:01:46.360 --> 0:01:49.040 of what the nickel market was in the first place. 0:01:49.360 --> 0:01:50.400 To your way ahead of. 0:01:50.320 --> 0:01:52.440 Me on this the one we're not thinking about the 0:01:52.520 --> 0:01:54.840 nickel market on a like at least weekly basis. 0:01:54.920 --> 0:01:55.000 No. 0:01:55.120 --> 0:01:58.880 I know like two three things maybe about nickel, which 0:01:58.920 --> 0:02:02.760 is that a lot of it's from Indonesia. I believe 0:02:03.320 --> 0:02:06.520 it has some role in batteries or green energy, and 0:02:06.600 --> 0:02:09.680 so it's kind of an important commodity. What's the third one, Oh, 0:02:09.680 --> 0:02:13.720 it's also Indonesia. Could Indonesia move further downstream in the 0:02:13.800 --> 0:02:16.519 process so that it's not just exporting the raw nickel 0:02:16.600 --> 0:02:19.360 but also exporting some of the actual like or doing 0:02:19.440 --> 0:02:19.720 some of. 0:02:19.639 --> 0:02:23.120 That pretty sophisticated factory. Those about the nickel market. 0:02:23.160 --> 0:02:25.799 These are the three facts I'm aware of about nickel. 0:02:25.800 --> 0:02:28.000 But beyond that, nun like, I could definitely not tell 0:02:28.040 --> 0:02:30.080 you the number two producing nickel country. 0:02:30.200 --> 0:02:32.040 Okay, well, I have a bunch of I definitely. 0:02:31.760 --> 0:02:34.040 Don't know why nichol is important in batteries either, so 0:02:34.080 --> 0:02:34.760 maybe we'll learn that. 0:02:34.800 --> 0:02:36.760 Oh that's a good question. Well, I have a bunch 0:02:36.800 --> 0:02:39.359 of interesting stats that I think will sort of hit 0:02:39.480 --> 0:02:43.560 home stuff that has happened recently. But you mentioned the 0:02:43.639 --> 0:02:46.680 role of Indonesia in this market, and this is something 0:02:46.720 --> 0:02:49.840 that's relatively new. So I think they became the world's 0:02:49.840 --> 0:02:54.120 top supplier of nickel just in twenty nineteen they overtook 0:02:54.360 --> 0:02:57.040 I think it was the Philippines and they now supply 0:02:57.360 --> 0:03:01.400 more than fifty five percent of the world's nickel. So 0:03:01.520 --> 0:03:05.400 just insane dominance of that market. And in addition to 0:03:05.760 --> 0:03:08.640 that dominance in terms of market share, there's also lots 0:03:08.639 --> 0:03:13.360 of geopolitical intrigue with China. China, by the way, is 0:03:13.560 --> 0:03:18.160 about to become a net refined nickel exporter, and I think, 0:03:18.360 --> 0:03:22.960 like just a few years ago it imports, so not exports. 0:03:23.000 --> 0:03:28.040 It's imports accounted for like fourteen percent of global supply. 0:03:28.280 --> 0:03:31.639 So it's gone from being like a net importer potentially 0:03:31.680 --> 0:03:35.280 to a net exporter in just a few years. Crazy, right, 0:03:35.360 --> 0:03:37.200 So these are crazy stats, and I feel like we 0:03:37.280 --> 0:03:40.840 really need to dig into what has happened here. Because 0:03:40.880 --> 0:03:44.280 there are all these sort of thematic, odd lots ideas 0:03:44.320 --> 0:03:47.440 embedded in the nickel market. So one is just the 0:03:47.560 --> 0:03:52.360 idea of structural long term demand for battery related materials 0:03:52.640 --> 0:03:55.600 that will be important in the clean energy transition. I 0:03:55.600 --> 0:03:59.440 think nickel is used in hydrogen production. Two, I'm not sure. 0:03:59.760 --> 0:04:03.040 But in addition to that, you also have the difficulty 0:04:03.080 --> 0:04:06.600 of actually building out sustainable business models for getting these 0:04:06.640 --> 0:04:11.280 strategically important minerals that we need for the transition. And 0:04:11.320 --> 0:04:14.000 we've seen Indonesia there are a lot of accusations that 0:04:14.040 --> 0:04:17.280 it's been flooding the market with cheap and low grade nickel, 0:04:17.320 --> 0:04:19.680 and so that makes it harder for everyone else, like 0:04:19.800 --> 0:04:25.040 Anglo American to make money on this specificlar nickel. We'll 0:04:25.080 --> 0:04:27.600 get into that, we'll talk about all the different types 0:04:27.720 --> 0:04:30.120 of nickel. So anyway, I just think it's such an 0:04:30.200 --> 0:04:33.120 interesting story, and it's one that's sort of flown under 0:04:33.160 --> 0:04:36.039 the radar, at least for me recently, and so I 0:04:36.080 --> 0:04:38.000 am very pleased to say that we do, in fact 0:04:38.440 --> 0:04:41.320 have the perfect guests to discuss this. We're going to 0:04:41.320 --> 0:04:44.240 be speaking with Michael Vidmer. He is the Bank of 0:04:44.279 --> 0:04:48.640 America head of Metals Research and it was his report 0:04:48.839 --> 0:04:51.760 that really put this on my radar, and he just 0:04:51.839 --> 0:04:54.279 laid out some of the numbers that I cited to 0:04:54.279 --> 0:04:56.039 you a couple months ago, and I'm so glad we 0:04:56.040 --> 0:04:59.000 could get him on the show to further discuss this. So, Michael, 0:04:59.040 --> 0:05:00.839 thank you so much for coming on our box. 0:05:01.160 --> 0:05:02.240 Thank you very much for having me. 0:05:02.680 --> 0:05:05.599 Should we start with the basic question the Joe already 0:05:05.640 --> 0:05:09.040 sort of alluded to, what is What is nickel? Because 0:05:09.640 --> 0:05:13.520 it's not a singular commodity in some respects, It's sort 0:05:13.520 --> 0:05:16.440 of like oil. There are all these different grades and 0:05:17.040 --> 0:05:20.320 production uses for it. So what exactly when we say 0:05:20.400 --> 0:05:22.680 nickel or the nickel market, what are we talking about? 0:05:22.760 --> 0:05:24.839 Yeah, so nickel is an element I think that's the 0:05:24.839 --> 0:05:27.960 first thing I would say. It comes in elementary form 0:05:28.279 --> 0:05:31.560 out of the Earth. But what normally happens is that 0:05:31.960 --> 0:05:35.680 consumers use a nickel in processed form. So you have 0:05:35.720 --> 0:05:38.359 got the refined nickel that you can use, for instance, 0:05:38.560 --> 0:05:40.800 in your in your buckles, in your belt buckles to 0:05:40.839 --> 0:05:43.440 make them nice and shiny. You can then use it 0:05:43.560 --> 0:05:45.560 or another form of nickeline former. It's more like a 0:05:45.640 --> 0:05:49.520 chemical in ev batteries. And then there's still another type 0:05:49.520 --> 0:05:52.600 of nickel is more called nickel pick or ferro nickel 0:05:52.800 --> 0:05:55.280 that you can then use in a stainless steel mil 0:05:55.400 --> 0:05:57.560 so it comes in very different forms. What all of 0:05:57.560 --> 0:06:00.839 those have in common is they have some form of 0:06:00.920 --> 0:06:02.400 nickel in them. 0:06:02.839 --> 0:06:05.760 The batteries is probably the one. You know, belt buckles 0:06:05.800 --> 0:06:08.120 have been around for a while. Stainless steel has been 0:06:08.279 --> 0:06:12.400 around for a while. Obviously a lot of interest, particularly 0:06:12.440 --> 0:06:16.040 now strategically with the energy transition, etcetera, related to batteries. 0:06:16.200 --> 0:06:19.080 What is the role of nickel in batteries and how 0:06:19.120 --> 0:06:21.159 crucial is it as one of the you know, we 0:06:21.200 --> 0:06:23.880 talk about copper, we talk about lithium. How important is nickel? 0:06:23.960 --> 0:06:25.640 So we can we can break down the battery sector. 0:06:26.440 --> 0:06:28.080 When you're looking at China and when you're looking at 0:06:28.080 --> 0:06:31.359 the world outside China. It's different type of EV batteries 0:06:31.880 --> 0:06:37.039 that common effactors can use. In China, the EV manufacturers 0:06:37.040 --> 0:06:39.040 have gone down the route of using what is called 0:06:39.080 --> 0:06:41.880 a lithium r and phosphate battery. It used to be 0:06:41.920 --> 0:06:45.000 a very simple chemistry, didn't have the same kind of 0:06:45.080 --> 0:06:47.240 energy density, didn't give you the same kind of driving 0:06:47.320 --> 0:06:50.040 ranges that you would get these other types of batteries, 0:06:50.080 --> 0:06:52.200 but it was cheap, and I think that's one reason 0:06:52.200 --> 0:06:56.039 why the Chinese evs are not as expensive as the 0:06:56.120 --> 0:07:00.159 VEST and evs. The world outside China has relied on 0:07:00.240 --> 0:07:04.440 a different type of EV battery chemistry, and these batteries 0:07:04.560 --> 0:07:08.880 contain nickel. They give you more energy density, they give 0:07:08.920 --> 0:07:12.440 you a higher driving range as well. And when you're 0:07:12.440 --> 0:07:16.360 then breaking down the battery, you have got three elements effectively. 0:07:16.400 --> 0:07:18.080 So you have got an anode and a cathode and 0:07:18.120 --> 0:07:20.920 between those that's where the electricity flows. And it's the 0:07:21.000 --> 0:07:25.040 cuthode specifically where you then have the nickel in them. 0:07:25.080 --> 0:07:27.640 So where does nicol actually come from? So we mentioned 0:07:27.720 --> 0:07:30.560 Indonesia already, I think I mentioned the Philippines. But who 0:07:30.600 --> 0:07:32.760 are the big players in this market? And how is 0:07:32.800 --> 0:07:36.200 it actually extracted from? Presumably the ground? 0:07:36.600 --> 0:07:40.720 Again, very different, very different methods of extracting the nickel. Again, 0:07:40.760 --> 0:07:43.400 if you're breaking it down a little bit, you tend 0:07:43.480 --> 0:07:46.960 to have two types of deposits out there. The wond 0:07:47.160 --> 0:07:49.960 deposit is more in the cola regions, and then you've 0:07:50.000 --> 0:07:52.760 got another set of deposits that's more in the warmer 0:07:52.840 --> 0:07:55.040 and wetter regions that you have got a lot of 0:07:55.120 --> 0:07:58.160 oxidized locks of oxidized or some weather ors a little 0:07:58.160 --> 0:08:01.600 bit more difficult to treat the former. So the nickel 0:08:01.640 --> 0:08:04.160 ores that are in the colder regions like Russia, for instance, 0:08:04.200 --> 0:08:06.320 are relatively easy to extract. You take them all over 0:08:06.320 --> 0:08:09.080 the ground, send them through a smellter, refine them, and boom, 0:08:09.120 --> 0:08:12.240 you have got your your refined nickel. The nickel ores 0:08:12.240 --> 0:08:15.080 that are in the warmer and wetter regions, because they're 0:08:15.120 --> 0:08:18.320 oxidized and weathered, they are a little bit more difficult 0:08:18.320 --> 0:08:21.200 to process. So the different technologies that you can use 0:08:21.240 --> 0:08:25.240 as one technology again where you're using fire refining, and 0:08:25.240 --> 0:08:29.760 then there's another technology where you are using sulfuric acid 0:08:29.880 --> 0:08:32.720 effectively to lead the nickel out of the out of 0:08:32.760 --> 0:08:36.560 the oars. When you're looking at the biggest players in 0:08:36.600 --> 0:08:39.000 the space, it has actually changed a lot. And you 0:08:39.080 --> 0:08:42.920 mentioned it already in the at the outset. Historically, when 0:08:42.920 --> 0:08:45.200 you're looking at it, you had Russia as a big 0:08:45.280 --> 0:08:48.960 nickel producer, Australia as a big nickel producer, the Philippines 0:08:49.200 --> 0:08:51.680 were in the fold as well, Canada to some extent too. 0:08:52.080 --> 0:08:56.760 But what's happened recently is as the energy transition started 0:08:56.960 --> 0:09:02.520 to take off market participants. We're really focused on increasing 0:09:02.600 --> 0:09:06.559 nickel supply quickly. And there's one country that's just summed 0:09:06.760 --> 0:09:09.400 at the industry in that country is Indonesia. It has 0:09:09.840 --> 0:09:13.360 the weather type of war, but it has that in abundance, 0:09:13.559 --> 0:09:15.679 so it's very easy to actually take it out of 0:09:15.720 --> 0:09:20.160 the ground. And the Chinese went into Indonesia innovative also 0:09:20.160 --> 0:09:23.520 in the production technologies and managed to take the nickel 0:09:23.559 --> 0:09:27.080 out that they then needed to drive the EVE battery industry. 0:09:27.520 --> 0:09:31.800 So I definitely want to get into Indonesia what they've 0:09:31.840 --> 0:09:35.840 done to sort of rapidly expand their domestic nickel industry 0:09:35.960 --> 0:09:38.560 so fast. But just one more question before we get 0:09:38.640 --> 0:09:42.000 to some of these policy questions and supply. When looking 0:09:42.000 --> 0:09:46.480 at a total demand global demand for nickel, how much 0:09:46.600 --> 0:09:49.160 is batteries and how much has the rise of the 0:09:49.200 --> 0:09:53.760 so called energy transition, how much has that changed demand 0:09:53.880 --> 0:09:56.760 curves relative to say where we were ten years ago, 0:09:56.840 --> 0:09:58.880 Like how important is it as a buyer of nickel? 0:09:58.920 --> 0:10:02.760 Name massive massively has changed massively? Ten years ago, the 0:10:02.800 --> 0:10:07.439 battery sector had literally no share in nickel demand. When 0:10:07.440 --> 0:10:10.880 you're looking at it now, literally all of the demand growths, Like. 0:10:10.800 --> 0:10:14.600 How many tons of nicol do we produce? And how 0:10:14.600 --> 0:10:16.840 many tons would we be producing every year if it 0:10:16.880 --> 0:10:17.840 weren't for that battery. 0:10:17.960 --> 0:10:20.800 So look a few years back, the nickel market was 0:10:20.840 --> 0:10:24.079 around two million tons. By twenty thirty, it's potentially twice 0:10:24.120 --> 0:10:26.199 as much, and literally all of the demand rules is 0:10:26.240 --> 0:10:45.360 then coming through from the EBI battery side. Okay. 0:10:45.440 --> 0:10:48.360 So going back to Indonesia, so it seems like they 0:10:48.440 --> 0:10:52.000 made a strategic decision that this was an industry that 0:10:52.040 --> 0:10:54.800 they wanted to build out. And I think it started 0:10:55.080 --> 0:10:59.520 under the former president of Indonesia whose name I am 0:10:59.600 --> 0:11:03.559 sure I'm going to mispronounce, but Sisilo Bambang you doing? 0:11:04.559 --> 0:11:05.080 Is that right? 0:11:05.160 --> 0:11:06.360 Yes? Okay? 0:11:06.640 --> 0:11:11.600 But it's been continued under Djokovidodo. Why did they decide 0:11:11.760 --> 0:11:15.360 this was an area of strategic or financial interest? 0:11:16.480 --> 0:11:19.040 So it was the Indonesians which opened up the country, 0:11:19.040 --> 0:11:23.080 but ultimately was actually China which drove that development. And 0:11:23.120 --> 0:11:24.880 I think you see that a lot in the public 0:11:24.920 --> 0:11:28.880 discussion at the moment. I think the tariffs that President Biden, 0:11:28.960 --> 0:11:33.160 for instance, imposed on Chinese EV's, I think there is 0:11:33.440 --> 0:11:38.719 this undercurrent or the concern that the Chinese government very 0:11:38.760 --> 0:11:43.599 strategically over the past twenty years built its EV industry. 0:11:43.679 --> 0:11:45.680 And when we're talking EV industry, it's not just the 0:11:45.720 --> 0:11:48.280 EV side of things that the Chinese government has focused on. 0:11:48.640 --> 0:11:52.920 It's literally the entire supply chain. So they looked at initially, well, 0:11:53.000 --> 0:11:55.240 let's build some cars as a combustion engine, but then 0:11:55.240 --> 0:11:57.679 they read the China realized it's actually hard because the 0:11:57.800 --> 0:12:00.520 US and Europe actually have quite strong industries. And then 0:12:00.559 --> 0:12:04.000 they looked, well, if it's hard to compete in cars 0:12:04.040 --> 0:12:06.120 with a combustion engine, why don't we do evs. And 0:12:06.160 --> 0:12:08.600 that's exactly what they did. And then they set up 0:12:08.960 --> 0:12:13.720 a long term strategic industry policy and looked at what 0:12:13.800 --> 0:12:18.360 they need to accomplish becoming the dominant producer of evs. 0:12:18.800 --> 0:12:21.319 And one of the things that the Chinese government realized 0:12:21.720 --> 0:12:25.640 very early on is if you have a strong demand 0:12:25.720 --> 0:12:28.360 growth for evs, you also need the roma tiers and 0:12:28.400 --> 0:12:32.760 particularly the battery romatires. Without batteries, TVs don't go very fond. 0:12:32.920 --> 0:12:37.080 So the Chinese government looked at where some of those 0:12:37.120 --> 0:12:41.000 battery romatials are. They did it in lithium, another battery 0:12:41.040 --> 0:12:43.600 romat heal, they lived in cobalt, and they did also 0:12:43.920 --> 0:12:47.480 in nickel, and in twenty thirteen, the two presidents of 0:12:47.600 --> 0:12:51.200 China and Indonesia effectively set together and the discussion pretty 0:12:51.280 --> 0:12:53.360 much went like that. The Chinese said, look, we need 0:12:53.360 --> 0:12:55.319 the nickel. The Innetian said, well, we have the nickel. 0:12:55.480 --> 0:12:57.679 The Chinese said, well, can be invested, and then he said, yeah, 0:12:57.760 --> 0:13:01.240 do Let's develop that industry together. And so the Indonesian 0:13:01.280 --> 0:13:04.520 government then, together with the Chinese, set up industrial parks, 0:13:04.520 --> 0:13:08.280 and through that industrial park, supported by Chinese money, the 0:13:08.440 --> 0:13:12.880 nickel industry and then developed very very quickly. It's remarkable 0:13:12.960 --> 0:13:16.120 at the pace with which Indonesia and China in conjunction 0:13:16.240 --> 0:13:19.000 have been building that industry. 0:13:19.080 --> 0:13:22.040 Let's talk a little bit about how fast that happened. 0:13:22.120 --> 0:13:24.120 So I think Tracy, did you say it was like 0:13:24.160 --> 0:13:27.120 twenty nineteen. Even it was the Indonesia wasn't that big 0:13:27.160 --> 0:13:27.680 of a player. 0:13:27.800 --> 0:13:31.240 I'm citing Michael here, but in twenty nineteen it became 0:13:31.720 --> 0:13:33.840 the biggest producer of nicolas. 0:13:33.559 --> 0:13:36.480 And now it's overwhelmingly Yeah, what were the nature of 0:13:36.520 --> 0:13:39.800 those early relationships, What did China get, what did they 0:13:39.840 --> 0:13:42.560 have to offer from a technological transfer? And then what 0:13:42.679 --> 0:13:45.840 is Indonesia ge I guess in terms of royalties and jobs, 0:13:45.880 --> 0:13:48.000 like how what was the economics of those So but. 0:13:48.240 --> 0:13:52.520 In Dntia realized Nidia always was an exporter of nickel wars, 0:13:52.559 --> 0:13:55.760 which is unprocessed stuff. You basically put it on the ship, 0:13:55.880 --> 0:13:58.959 send it off the Chinese to China. The Chinese then 0:13:59.000 --> 0:14:01.880 processed it. And then the Indonesian government realized at some 0:14:01.960 --> 0:14:04.040 stage that it's actually another a lot of value added 0:14:04.080 --> 0:14:07.560 in that. And they also saw that demand potentially increases 0:14:07.679 --> 0:14:10.760 very strongly, and so they wanted to build more of 0:14:10.840 --> 0:14:15.559 a value added downstream industry. Indonesia wanted to build a 0:14:15.679 --> 0:14:19.440 downstream processing industry invited and then was looking at how 0:14:19.480 --> 0:14:21.600 to actually accomplish that. So in the first instance, what 0:14:21.680 --> 0:14:26.120 they did is they stopped the exports of unprocessed nickel oars. 0:14:26.160 --> 0:14:29.880 So in twenty fourteen you could no longer ship unprocessed 0:14:30.040 --> 0:14:33.400 was In that year, Indonesia had a global nickel market 0:14:33.400 --> 0:14:35.560 share of less than ten percent, like five or six percent, 0:14:36.240 --> 0:14:41.120 very low. And then I think various countries and operators 0:14:41.120 --> 0:14:43.600 were looking at the Indonesians or and Indonesian was and 0:14:43.640 --> 0:14:46.720 I set before the Indonesian oars are weathered, was oxidized, 0:14:46.960 --> 0:14:51.800 was very difficult to process and the Chinese then went 0:14:51.960 --> 0:14:56.520 into Indonesia. It's one comedy in particular who then looked 0:14:56.520 --> 0:15:01.880 at innovative productive production technologies and started experimenting with different 0:15:01.920 --> 0:15:05.160 methods of extracting the nickel from the nickel oars and 0:15:05.160 --> 0:15:08.600 were actually quite successful and once they had distemplate in place, 0:15:08.920 --> 0:15:11.640 the nickel industry then expanded quite quickly. 0:15:12.480 --> 0:15:16.600 Has anyone else been able to replicate what that Chinese 0:15:16.680 --> 0:15:20.520 processing technology that you just mentioned, Like, is this something 0:15:20.600 --> 0:15:24.120 that other people are doing that has also increased supply 0:15:24.240 --> 0:15:26.560 elsewhere in the world aside from Indonesia or is it 0:15:26.600 --> 0:15:28.880 sort of a China Indonesia exclusive thing. 0:15:29.000 --> 0:15:31.640 So there's two two technologies. One called pressure as a 0:15:31.680 --> 0:15:34.680 leading that has been tried before, but literally when you're 0:15:34.720 --> 0:15:37.480 looking at all the projects that have been brought online 0:15:37.480 --> 0:15:40.080 in Australia over the lifetime of those projects, those projects 0:15:40.080 --> 0:15:43.000 feel not pay for the initial investment because it's just 0:15:43.000 --> 0:15:45.000 a very difficult technology. The Chinese have been very good 0:15:45.040 --> 0:15:48.760 in bringing that online. The other technology, which is more paramatology, 0:15:48.800 --> 0:15:52.440 which is fire smelting and refining, that is also a 0:15:52.680 --> 0:15:55.680 dominated by the Chinese, so they already had a very 0:15:55.720 --> 0:15:56.280 strong wall. 0:15:56.320 --> 0:15:59.240 It used to be clear Australia has basically tried to 0:15:59.280 --> 0:16:02.000 do the exact thing thing and internally have not been 0:16:02.040 --> 0:16:03.520 able to do it economically. 0:16:03.640 --> 0:16:05.360 Yeah, So there was a discussion it was about ten 0:16:05.440 --> 0:16:08.200 fifteen years ago on the type of ores that are 0:16:08.400 --> 0:16:12.440 available in Indonesia, and I think the undertone always was, look, 0:16:12.440 --> 0:16:15.640 the oars are there, but they're just very difficult to process, 0:16:15.760 --> 0:16:18.680 and therefore it's going to it might be hard to 0:16:18.720 --> 0:16:21.440 see a very big production increases coming through. And that 0:16:21.600 --> 0:16:23.400 was through up to the point where the Chinese actually 0:16:23.400 --> 0:16:26.200 then went into Indonesia and started developing those assets. 0:16:26.920 --> 0:16:29.720 So talk to us more about the sort of virtuous 0:16:29.920 --> 0:16:33.200 cycle of the supply chain that this is creating. So 0:16:33.720 --> 0:16:38.880 China now has access to this cheap and abundant nickel 0:16:39.280 --> 0:16:44.080 that feeds into their ev industry. How crucial has that 0:16:44.160 --> 0:16:47.440 nickel been in sort of building out the electric car 0:16:48.360 --> 0:16:49.600 business in China. 0:16:49.640 --> 0:16:52.240 I think nickel on its own probably wouldn't have made 0:16:52.320 --> 0:16:55.400 much of a difference, but I think where China was 0:16:55.920 --> 0:16:58.960 very strategic in making sure that all of the raw 0:16:58.960 --> 0:17:03.120 materiers that I needed it are available. So it's not 0:17:03.240 --> 0:17:05.720 just the nicer side, it is the lithium side as well. 0:17:06.080 --> 0:17:08.840 It is the cobal side as well. That's everything that 0:17:08.880 --> 0:17:10.560 goes into the cassos. And when you look at the 0:17:10.600 --> 0:17:13.880 unknote the graphite side of things, again China is dominating. 0:17:13.880 --> 0:17:16.320 So when you're looking at all of those critical raw materials, 0:17:16.760 --> 0:17:20.080 a lot of that is being dominated by China. And look, 0:17:20.359 --> 0:17:22.200 you can take a slightly different view on that. Take 0:17:22.200 --> 0:17:24.800 the last twenty years during the period of globalization. I 0:17:24.840 --> 0:17:28.480 bet around twenty ten twenty eleven, the guests that you 0:17:28.520 --> 0:17:30.439 would have heard that would have had here, there was 0:17:30.680 --> 0:17:33.320 a lot of talk about I don't know, Netflix, the 0:17:33.359 --> 0:17:39.040 services industry and the cool stuff basically now, but no 0:17:39.080 --> 0:17:41.560 one realized that actually, you can't run an economy without 0:17:41.600 --> 0:17:43.840 having the basic the basic Roman here. So the vest 0:17:44.000 --> 0:17:48.520 effectively created a vacuum in those supply chains that China 0:17:48.560 --> 0:17:51.640 effectively filled. And that's the issue that that governments now 0:17:51.680 --> 0:17:52.479 have to grapple with. 0:17:53.040 --> 0:17:55.879 How much of the Chinese edge when it comes to 0:17:56.800 --> 0:18:01.480 refining or processing or I guess even acquire raw commodities. 0:18:01.680 --> 0:18:05.439 How much of the edge is just a sheer scale question. 0:18:05.760 --> 0:18:10.160 There is a gigantic market in China period. There are 0:18:10.320 --> 0:18:13.760 a lot of workers in China period, and so setting 0:18:13.840 --> 0:18:18.440 even setting aside whether different groups of engineers and scientists 0:18:18.480 --> 0:18:22.399 could replicate these processes on paper. How much is the 0:18:22.760 --> 0:18:24.800 just the pure scale edge part of the story here. 0:18:24.800 --> 0:18:27.480 I mean, having a big domestic market certainly helps, but 0:18:27.680 --> 0:18:33.240 again what also helps is having a strategic industrial policy 0:18:33.520 --> 0:18:37.159 to actually being able to capitalize on that on that 0:18:37.200 --> 0:18:40.480 domestic market. And it's I think the conjunction of those 0:18:40.520 --> 0:18:44.359 two that wrote about that dominance in the supply to 0:18:44.400 --> 0:18:47.159 a Now the problem that we're having increasingly is and 0:18:47.200 --> 0:18:49.280 this always happens in China. We had it in steel, 0:18:49.280 --> 0:18:52.600 and we had it in aluminimum. When the Chinese government starts 0:18:52.600 --> 0:18:55.880 developing industries. There's actually inherently a lot of competition also 0:18:55.960 --> 0:18:59.359 within China, but you always get over investment, you have 0:18:59.440 --> 0:19:02.640 got overcome. So take the last study from the European Union, 0:19:02.640 --> 0:19:06.560 firms and the European Union estimates that last year the 0:19:06.680 --> 0:19:09.239 Chinese could have produced twice as many cars than they 0:19:09.280 --> 0:19:12.280 did through the over capacities that they've had. And so 0:19:12.320 --> 0:19:14.120 what you're seeing now is that some of those over 0:19:14.160 --> 0:19:16.760 capacities is or there's a threat that some of that 0:19:16.840 --> 0:19:20.359 overcapacity is actually now being exploded to the Western markets. 0:19:20.400 --> 0:19:22.920 And again that takes us back to the whole discussion 0:19:22.920 --> 0:19:27.120 about terrorists and trade protectionism, But it is that entire 0:19:27.160 --> 0:19:29.160 approach I think that we've seen the last twenty fifty 0:19:29.240 --> 0:19:32.000 years that that brought kind of those supply chains together. 0:19:32.560 --> 0:19:35.680 Okay, speaking of over capacity, I mentioned in the intro 0:19:35.880 --> 0:19:39.560 that there have been these accusations of Indonesia essentially flooding 0:19:39.760 --> 0:19:43.840 the market with low grade and low price nickel. What 0:19:44.040 --> 0:19:47.359 impact has the dominance of Indonesia on the nickel market 0:19:47.560 --> 0:19:49.800 actually had on other businesses? 0:19:50.280 --> 0:19:52.280 So, if I put it very simply, I think for 0:19:52.560 --> 0:19:59.840 China it's almost always about quantity, not about value, about volume, 0:20:00.119 --> 0:20:04.600 but not about value. And so coming back to preventing 0:20:04.680 --> 0:20:07.320 bottlenecks through the supply chain, when you're looking at the 0:20:07.359 --> 0:20:10.520 industrial policy, I think what China wants to prevent is 0:20:10.920 --> 0:20:15.600 constraints and bottlenecks and therefore higher prices that would effectively 0:20:16.400 --> 0:20:19.959 make it difficult for the strategic industry likely V manufacturers 0:20:20.000 --> 0:20:23.040 to produce those evs. And so what we see in 0:20:23.160 --> 0:20:26.760 Indonesia at the moment is a lot of discussions about 0:20:26.840 --> 0:20:30.000 where the production costs are Indonesia, what is a marginal cost? 0:20:30.040 --> 0:20:35.959 Because ultimately, if you're prioritizing value volume over value, then 0:20:36.000 --> 0:20:40.080 you're producing at costs. Now, the problem for the producers 0:20:40.160 --> 0:20:43.600 outside China is if that is the name of the game, 0:20:44.240 --> 0:20:47.440 there is not a lot of fat in producing nickel, 0:20:47.440 --> 0:20:50.600 and that's why we've seen the Western producers like BHP 0:20:51.280 --> 0:20:55.720 and Anglo actually taking a relatively bare review on their 0:20:55.760 --> 0:21:00.040 nickel assets. PHP actually is probably the one data what 0:21:00.320 --> 0:21:02.040 you mentioned Ungler before, but BHP is the one that 0:21:02.119 --> 0:21:04.880 would highlight potentially even more so. They have one operation 0:21:05.400 --> 0:21:08.400 in Australia called Nickel West. It's a really significant side 0:21:08.400 --> 0:21:11.560 big side actually, and a few years back we thought 0:21:11.600 --> 0:21:14.320 that that could actually be the supplier of choice to 0:21:14.480 --> 0:21:17.800 the Western or to the ev industry. But that's actually 0:21:17.880 --> 0:21:20.600 one of the one of the assets that BHP doesn't 0:21:20.640 --> 0:21:22.920 assign a lot of value to anymore these things. 0:21:22.960 --> 0:21:25.639 So prices have just come down so much that this 0:21:25.800 --> 0:21:28.159 big project in Australia just can't make much more. 0:21:28.280 --> 0:21:29.520 Yeah, it's effective that. 0:21:45.640 --> 0:21:47.200 I want to go back to something you said in 0:21:47.280 --> 0:21:50.600 the beginning about the two different types of chemistries. So 0:21:51.480 --> 0:21:54.840 on some basic level, the nickel based batteries are not 0:21:55.080 --> 0:21:58.560 as efficient as the sort of the chemistry that's in 0:21:58.600 --> 0:22:00.520 the West, but the Chinese battery are like the best 0:22:00.560 --> 0:22:00.920 in the world. 0:22:01.000 --> 0:22:04.119 Right. Yeah, So again this is when you would have 0:22:04.200 --> 0:22:06.639 to go back, because it's the second base evolving is 0:22:06.680 --> 0:22:09.280 evolving a lot at the moment. So initially, I think 0:22:09.320 --> 0:22:13.240 when we started talking about the ev industry, the idea was, 0:22:13.359 --> 0:22:17.200 and that's seven eight years ago, that nickel based batteries 0:22:17.840 --> 0:22:21.840