Those antimony, arsenic, aluminum, selenium and hydrogen and nyxogen and hydrogen and urenium and nicoliodinium, naponium, germanium and.
Iron amoricia Hellostephonomics Here the podcast that brings you the global economy, and we're visiting some of the forgot hument corners of the periodic. Take in we these days and iodine, andium and thulium and thallia as the world struggles to get its hands on the critical minerals will need to power electric car batteries and all those other green machines. Good news for green tech companies maybe, But will it also spell new riches for the countries that currently have
these much sought after materials. Historians would say, don't bet on it. As a long and deeply depressing tradition of commodity rich economies failing to benefit from their natural wealth. With a handful of notable exceptions, such countries all too often end up worse off than neighbours that weren't blessed with all those natural assets in the first place. Could
this time finally be different? I'm going to debate that in a few minutes with Bloomberg commodity reporter and author Jack Farcie well backed senior economist Jim Cust But first, Bloomberg's Indonesia economy reporter Claire Joo and metals and mining reporter Annie Lee have an encouraging story to tell you from Indonesia. The reporting was done by both of them, but it's Claire's voice you'll hear doing the narration.
When you think of elements like nickel and aluminum, they're probably just boxes on the periodic table. But these minerals are essential components that go into making batteries for electric vehicles. This is a four hundred billion dollar industry, and no one knows it's better than Indonesia. Made up of over seventeen thousand islands and lush rainforests, Indonesia sits a top an abundant reserve of native metal copper, gold, and nickel,
the raw material used in evy batteries. For decades, Indonesia has been content with digging up the minerals and sending them to places like China, where skilled workers and factories turn them into higher value products like batteries or electric cars. But now the biggest economy in Southeast Asia has other ideas. Why should Indonesia stop at exporting role or when it can export the batteries that are made from them and even the cars powered by those batteries. Indonesia's ban on
rule box site exports began over the weekend. The ban is meant to encourage more investment into.
Higher value added activities on shore Indonesia.
The bottom line, if you want our minerals, you have to process them here. For President Jokowidodo, Indonesia's natural wealth is the key for it to become a high income country.
It is sassy in Dose three.
Industrial downstreaming is very important. We will leap forwards if downstreaming is successful.
Thistochi The Golden Indonesia of twenty forty five, smart execution is needed.
It's estimated to add more than seven hundred billion dollars to the economy and create nearly ten million jobs. To push this strategy forward, Indonesia uses a carrot and stick approach. On one hand, it's clapped down on exports of some raw mineral ores. On the other, it's offered tax for certain incentives, viewering companies to build smelters and battery plants within its borders, and it's already working, but is it good to go to get a better idea of how
the carrot and stick approach materialized. I spoke with Mohammad Faiz Naguza as an economist at Bank of America.
We saw about eleven billion dollars of being realized into that sector.
By that sector, he means nickel downstreaming.
But that is just that sector. Beyond that, we're also seeing more investments likely coming into other smelters copper smelters for example, as well as battery grade nickel and even producing IV batteries themselves. So the investment inflows Intodonesia is getting beefed up because of this success in downstreaming.
Nowhere is that boom more apparent than in Morowali. It's a nickel ridge district in Indonesia, Sulawesi island east of Borneo. Once a quiet fishing town, it now houses the bustling Morowali Industrial Park, which just celebrated its tenure anniversary this month. Trucks are busy transporting or from mines to smelters, Buses full of workers shuttling across the area. The park even has its own private airport and port facilities. It employs
more than eighty thousand Indonesian and Chinese workers here. For the first five months this year, this park has already registered twenty two billion US dollars of investment. That's compared with a record of twenty one billion dollars for the whole twenty twenty two.
To be clear, such success is quite rare. Indonesia holds the world's largest deposit of nickel, a mineral in short supply. The same goes for Botswana when it comes to diamonds. The global diamond manufacturer the Beers relies on Botswana's mines, leveraging that the Botswana government struck a deal that set aside a portion of rough diamonds to local cutting and polishing companies. Historically, polishing usually happened in places like Antwerp, Belgium.
Other countries, though, face more basic challenges.
And here's important to maybe use the example of the Democratic Republic of Congo.
Rahi dash Dawa, head of the International Council on Mining and Minerals.
In DRC, A decision was taken to process copper concentrate in the DRC itself, but that had to be delayed because copper producers simply didn't have enough electricity in order to be able to process the copper. So you can't do copper smelting without electricity. And the DRC was not producing enough of the electricity in order to keep that plant going. And so you might think why don't companies
set up more processing plants. Well, actually, if you don't have enough of the energy you need and increasingly low carbon and low cost energy you need, it's very difficult to process.
This success doesn't come free either. For one, there's the environmental price given the tons of waste generated and the coal to provide electricity for factories. Because Lane Calling, Annie Lee listed a residential building outside of the Indonesian Park where she met Ricky Ardiansha. Ricky rends rooms to Indonesian workers and owns a construction.
The water, the rain rink is color is black?
Oh really yes?
Because the air the think.
Us and in air maybe and then the dust here.
Ricky told us when it rains, the rain drops turned black from the dust in the air. Just outside this building, there's a river that runs across the neighborhood. It looks like a canal of tomato soup. Now, President Jacobi also wants to apply the same strategy not only to other metals, but into agriculture, farming, and fisheries, every sector that Indonesia has clouds but not dominance. With the twenty twenty four elections booming a trace questions will his successor repeat the
same trick. Here's economist Nagusa. Again.
Success is so evident that I think most investors assume that it will be unlikely for any future governments to say, you know, we need to revert this policy. The success in terms of exports and the investments are very visible. So the assumption is that there will be pretty much a good degree of policy continuity on this downstreaming. So if something were to change, I think that will come as a negative and nasty surprise for investors.
Whatever the outcome, other countries will be closely watching. If they want a bigger role in the supply chain, they're minerals, maybe their fastest way to get there in Jakarta Clari out for Bloomberg News.
So I would step back to consider now how this has gone in the past, and whether there's any prospect for countries elsewhere in the world, especially Africa, to benefit from the rush to acquire the minerals that will be needed to wean the planet off fossil fuels and to
help us do that. I'm joined by Jim Cust, senior economist in the Africa Department at the World Bank, who's written extensively on this subject, and Bloomberg's Energy and Commodities reporter Jack Faci, who co authored with Javier Blass, The World for Sale, which is a cracking book on global commodity trading. Jim Cust, Jack, thank you very much for this. Jim,
let me start with you. Let's go back in time first and think what's the traditional story of a commodity boom for developing country before we get onto how this time might be drifferent. What has traditionally been the problem for developing countries looking to get full advantage from these kind of booms.
Sure, many countries have found it very challenging to move from being a major resource dependent economy, so whether that's mining or in other cases it's been oil and gas, and turn that below ground wealth into above ground prosperity.
So we've all heard of the resource curse, and this is sort of the classical case of countries that have commodity booms, followed by busts, and if they haven't saved and invested enough of their revenues, then the busts can hit them even harder than the boom in the first place. And so countries have got into these kind of cyclical challenges that ultimately has added up to many of them stagnating and growing a lot slower than their neighbors that
didn't have the resources. And that's what economists think of as the resource curse, that you end up growing slower than you might have done otherwise.
It's always striking how few there are, but there are a few countries that have managed to get round this.
Yeah, absolutely, so the result curse is certainly not universal. So we can think of countries like Chile and Indonesia, Australia, of course, but in Africa, countries like Botswana have done very well from their resources and have really succeeded in taking something that is a sort of primary commodity dependence and then turning those revenues into something you can invest in the rest of the economy and have done well out of it.
What of what would you advise countries who are trying to repeat the Botswana example or is it just impossible it's not impossible.
So the way that we think about it is it's like a chain of decisions, and the chain of decisions is only as strong as the weakest link. So there are many places where the chain of decisions can go wrong.
But governments have to make a series of decisions. So everything from negotiating a good deal in the first place with the private sector companies that you're typically working with, all the way through to making sure you get those revenues and then you use those revenues effectively that you avoid corruption and you avoid mismanagement and the boombus price cycle and so on. So there's a series of decisions and each step in that decision chain, there are examples
from countries like Botswana that you can emulate. And actually Botswana has just been in the news very recently because they've renegotiated their deal with the Beers and they have a reputation for negotiating a very tough deal when they work with the private sector.
And we actually heard a little bit about de Beers in the earlier piece. So Jack, when you think about the move to net zero, of course lots of people wonder whether we really make them move to net zero but there's certainly a massive rush for the materials that we need to build all of those batteries for electric cars and generally sort of power the transit transition away
from carbon. What does that mean in practical terms? What kind of commodities are we talking about and where are they currently?
I think the big one where markets are being totally transformed as a result of even the steps that we're taking at the moment towards net zero, even if together they're not enough necessarily to get us in at zero
by twenty fifty. But the big ones where markets being totally transformed is the commodities that go into batteries for electric vehicles, and the key ones are things like lithium, nickel, cobalt, perhaps to a slightly lesser extent, manganese, graphite, and then things like copper and aluminium that are used in electrical wiring and therefore important both for the batteries but also the power cables, the charging stations, et cetera, et cetera,
et cetera. Some of those markets are already quite large and well established, so things like manganese and nickel already
have a large use in the steel sector. They're used as alloys in things like stainless steel and other steel alloys, and so there's already quite a large market, but something like lithium and cobalt were really quite small markets only a couple of years ago, and already they have increased, i think, probably doubled in size over the past five years or so, and the projections are that they would double, triple or even more in size over the coming decades.
So those are markets where we're going from a relatively small market to suddenly a much larger market, and we're going to need to find lots more supply. In most cases, the supply or that the resources are there. So lithium, for example, there's a lot of lithium in South America, also in Australia. Nickel, as I think we just heard and we'll probably talk about quite a lot more. Indonesia has increased its supply of nickel enormously in the last few years, and it's projected to do so even more
so in the coming years. So the resources are out there, but nonetheless it's a big challenge for the global mining industry to increase supply by a huge amount of some of these commodities.
So I guess there's a nickel rush as opposed to
a gold rush, as you say, but it's been transformative. Now, we heard about Indonesia, and a lot of people listening to that story would think, Okay, if you're a country that does is lucky enough to have these critical minerals, the government announcers it's going to ban the unprocessed form of those minerals, and lots of investment comes in and you get the downstream industry, which helps you perhaps avoid some of the issues that Jim was talking about earlier.
Should we be encouraged by the Indonesia an example?
I think the Indonesian example is a very impressive example of a government pursuing a policy here to encourage investment into its nickel industry and also to develop some more of the processing of the downstream and being successful. I also think it's a very rare, I'm hesitant to say unique, but it's a very rare example of a number of factors that Indonesia had in its favor. The number one being is today a vast share of the world's nickel supply,
a significant share of the world's nickel reserves. But even when they started this policy direction nearly a decade ago. So Indonesia first actually banned exports of nickel or in twenty fourteen, and they were much smaller player in the global nickel market at that point, but they were still the key supplier of nickel or to China and to the Chinese industry that was turning it into nickel pigeye in which then was an input into the Chinese stainless
steel industry. And so when they did that, the Chinese stain and the steel industry had little alternative but to come to Indonesia and build nickel pigeye and plants there because there wasn't an alternative it. So, I think if we're talking about how countries can capture the most rents from these industries, Indonesia is a rare example because they have such a dominant position in a particular market. Botswana
is a good example in diamonds. They also have a very large share of the global diamond market, and so that puts them in a very obviously puts them in a much stronger position, give them much more leverage if they're negotiating with companies country to try and extract more rent from their natural resources industry.
And jet you also had said that perhaps there were quite a lot of attractions to going to Indonesia anyway, and even without the policy, you might have seen this kind of inward investment.
Yeah. Absolutely, so they were really kind of pushing water downhill. The origin of this was the nickel pig iron industry, which is a kind of low grade nickel that was used in stainless steel built and rose up originally in China after about two thousand and six when nickel prices shot up a lot, and that made this process of
making nickel pig iron economic. And at the time when Indonesia started this process of restricting exports, it was way cheaper to make nickel pig iron in Indonesia than it was in China, both because of the shipping cost because you weren't having to ship lots and lots and lots of very low grade ore, but also because Indonesia was very rich in coal, Coal powered energy was very cheap.
It's an energy intensive process, so the kind of costs we're talking about, it was costing about six to eight thousand dollars a ton to make nickel and in Indonesia versus ten to twelve thousand dollars in China, So there was a really clear economic incentive behind it, and in fact, some of the Chinese companies that have invested now and build lots of I think say privately at least that they might have done it anyway even if the government
hadn't banned exports. The other point I would make is, and it's a really interesting case study for lots of reasons that there's been this really close partnership and alliance between the Indonesian government and China, and in particular a couple of a few Chinese companies, prime among them Singshan, which is the world's biggest nickel and Staler's steel producer, and maybe familiar to listeners because it was at the center of a huge short squeeze on in the nickel market last year.
Those who avidly look at the short squeens.
Those who avidly follow the metals markets. But even if not,
it's a fascinating company. It's one of the great innovators of the global metals industry, and they really bet the house on Indonesia a number of years ago, forged this very close partnership with the Indonesian government, and in exchange, the Indonesian government has really opened the doors to them, allowed them to make the investments and build the projects that they were building the way that they wanted to, so, you know, using Chinese workers, giving them tax breaks, all
of these kind of things to really encourage them and to make it as cheap as possible for them to come and make those investments in a way that lots of other countries with nickel resources hadn't done. And so as a result, you've seen this kind of huge investment from China, principally into Indonesia, and as a result, this massive boom in the Indonesian nickel industry.
Well for those listening who woke up this morning not realizing they were going to be much better informed about nickel pig iron by the end of the day. But really going back thinking now about Africa, Jim, we have this quite encouraging example in Indonesia. We do have a palpable boom in materials that, as we've already mentioned, are pretty are present in large amounts in certain African countries. What's the prospect for African countries announcing that they're not
going to export unprocessed versions of these materials. I was one of the reasons we were doing. This story was that one of a recent Bloomberg conference in Morocco, the New Economy Gateway, we heard a Ghanaian minister say that they weren't going to export unprocessed lithium as they developed that industry. How feasible is that.
Well, I think the first thing to say is that the overall opportunity is pretty exciting for African countries. So we do see a boom ahead in a whole range of different metals and minerals. Jack mentioned some of them already, the earliest around the battery minerals, but there are many others, including rare earths, that are found all over Africa in abundance,
so there's a big opportunity here. Africa has been the most under explored region in the world, so it's not only that we know there's a lot there already, but there's probably even more to be found as well. On top of that, I think there's a recent growing recognition that supply chains for some of these metals are fragile
but also quite concentrated. So of course a lot of the processing gets done in China, but also in places that are far from say, US markets, and so as the US tries to increase its capacity in electric vehicles, in batteries and things like that. There's a kind of a new sort of interest in figuring out how can Africa build out some of these supply chain themselves, which could help bring resilience not just in the interests of African countries, but in the interests of others in the
global market. So there's this kind of alignment of interest that is quite new and quite unique that we hope will work in the favor of African countries. As Jack rightly points out that there are challenges to this. It's not as simple as oh, you just announced an export
ban and everything will sort of follow suit. It's worth noting that even in Indonesia they had to give away some pretty pretty serious tax concessions to some of the mining companies to make this kind of work for them, and when they'd first tried this in around twenty fourteen, it wasn't a universal success. They did run into challenges. There wasn't enough smelting capacity, and actually they lost a lot of their market share in baulk side production to
the baux side demand. Some of it got driven to Africa, to Guinea, and the share of Indonesia's bulk side supply fell and I don't think it's recovered since, so there's sort of cautionary tails here as well. But the ambition of governments like Ghana is to be applauded and to see if they can sort of seize the moment. Right you've got the increased bargaining power that some of these
countries have. DRC, of course, is a great example of this, with a huge share of the world's cobalt supply in DRC, combine with the rising demand for these metals, combined with the fact that there's interest from other actors. But it's a window of opportunity and it's one that can close easily. So you may see headlines around this idea that is lithium the new oil, and I think we need to have a touch of realism to go with this, that lithium is not going to be the next oil for
various reasons. The size of the market is a fraction of what oil is. It's the dominant battery technology of today, but it doesn't mean it remains to be the dominant battery technology of twenty fifty. For example, And actually, if prices were high and sustained between now and twenty fifty, the incentive for people to come up with alternative battery technologies would be even greater. So African countries need to see themselves in this global game where there's innovation puting
at a very fast pace. And so while they might have some bargaining power, it's not a blank check. It's not a blank check to say we're going to ban exports and everything else will follow. You might actually inadvertently drive investment elsewhere and it could backfire, as we've seen in some countries.
Well.
And also, I mean we're speaking in the week where the British government has had to extend enormous inducements to persuade a Tata Industries to put their big battery factory in the UK, hundreds of millions of pounds supposedly, we don't know the exect number. I mean, this is a very competitive market and there's lots of subsidies flying around. There is a risk that you're just adding costs and adding reasons for companies not to go there.
Yes, that's right. So I mean the first thing is to note that not every country that has an abundance of minerals has the processing supply chain, so huge amount of iron ore comes out of Western Australia. They're the biggest iron ore producer in the world. They're not even in the top twenty five of steel producers in the world. All of that iron ore for Western Australia goes to China,
goes to the steel mills in China. Similarly, Chile is famous for being a successful copper producer, but more than half of Chile's copper is exported raw and that proportion is actually rising rather than falling. And so it's not the case that to be a successful mineral producing, affluent economy that you have to go down the supply chain
of the minerals that you have in abundance. Actually, a lot of the processing makes sense to take place closer to the markets, closer to the manufacturing centers and so on. So this is not the This is not the recipe for success that is necessary. Right, This is not the path that countries like Australia and Chile have followed. It doesn't mean it can't be successful, as the Indonesian case is starting to demonstrate, but nor is it necessary for success.
Both of you have spent a long time looking at this and Jack, you've reported on many commodity booms and busts over the years. Does this feel different? I mean, either in terms of the incentives facing the big industries involved and the governments that are pushing for those climate targets, or in the sort of underlying conditions in Africa and other commodity commodity producing countries.
I don't know. I think you know this time is different is obviously the most dangerous phrase to utter in in finance and markets. No, I don't think so. I think you know. It's obviously a fascinating moment and a very exciting one if you are in the batteries or the battery metals industry. But fundamentally, these are commodity markets
and they will and indeed are going through booms and busts. So, you know, Jim was talking about the differentistries going into different types of batteries, and already we've seen in the last few years as electric vehicles have grown and grown, and this has become a front page story that shifts in the battery chemical battery makeup, in part in response to things like concerns about the concentration of supply of
cobalts ay from congo are making meaningful impacts. So, for example, the cobalt market at the moment is in a bit of a slump. That the price of cobalt is at the lowest in quite a number of years, in spite of the fact that the market is growing very rapidly and demand is growing very rapidly. That's absolutely true, but nonetheless the price is at a multi year low. One
of the reasons is a big increasing supply. Another reason is actually the chemistry of batteries has been changing, so car makers, particularly in China, are using lower cobalt batteries and batteries have no cobalt at all in them. Lithiumyin phosphate batteries are rising very quickly in popularity. So if you look at some of the forecasts for demand for cobalt in twenty thirty, say from last year to this year,
those forecasts have been cut pretty substantially. So for example, I was looking at earlier today at a company called Dartan Commodities, which is one of the key forecasters on cobalt, and they've cut their demand from electric vehicles for cobalt in twenty thirty by about twenty percent. As a result, of that shift. So these markets can absolutely still go through booms and bus and that does make it a competitive environment unless you're in a position like Indonesia in
nickel or Botswana in diamonds. If you're not in that rare position of being a very dominant supplier of a market, it's much harder to have that negotiating leverage. It's not to say it's totally impossible, and I think one of the there's a couple of interesting things of the current
moment that I would just point out. One is, you know, a lot of processing goes where energy is cheap, it tends to be quite energy intensive, and so you have big metal processing industries in places like Scandinavia with hydroelectric power, Iceland with geothermal power, the Middle East with cheap natural gas. Increasingly now as solar and wind become very cheap sources of power possibly and potentially you have hydrogen as well coming as a way of storing that renewable power at
some point in the future. That can really democratize access to cheap power and make that availability of cheap electricity no longer such a stumbling block for countries that want to build processing industries and The other, of course, is what's happening in global geopolitics, where suddenly the US and EU in particular are saying are looking at the dominance of China in the processing of all of these metals and saying strategically that's not great for US, and willing
to spend large amounts of tax payer money to try and change that situation, As the example of the UK is showing, probably they want to change that situation by building capacity in their own countries rather than in Africa, say, but potentially there's a possibility there for some kind of joint venture where you see countries in Africa or South America or Asia, or whether it might be being able to get some kind of government funding from the US or
Europe or or other countries that want to try and diversify their battery supply chains.
One of the most evocative examples of some of these issues from back in history was the Calico Acts, when Britain actively banned Indian cotton from the British market in the seventeen twenties to protect and help kickstart the British cotton industry and I think set back the textile industry in India for hundreds of years, so I guess we would hope that what is different now is that our industrial countries are not actively trying to thwart or openly
trying to thwart the development of developing countries. Jack Farci, Jim Cust, thank you very.
Much, thank you, thank you.
Well, that's it for this episode of Stephanomics. Next week we'll have more, in fact the last in the current series. In the meantime, you can get a lot more economic insight and news from the Bloomberg Terminal website or app. This episode was produced by Magnus Hendrickson, Yang Yang and Summer Sudden. Special thanks to Claire Joo, Annie Lee, Chandra Asmara, Norman Hassano, Jack Farci and James Cust, and of course the brilliant Tom Lehra for the elements you heard at
the start. Molly Smith is the executive producer of Stephanomics and the head of Bloomberg Podcast is Sage Bowman.