Demand for nickel, a key component in electric vehicle (EV) batteries, is expected to weaken this year as the EV sector shifts towards other battery components and China's economic difficulties persist, according to industry players.

This outlook is affecting Indonesia's goal to establish itself as the world's largest producer of the mineral and build a domestic EV battery supply chain.

Nickel prices have continued to decline from the highs of 2022. On April 9th, following U.S. President Donald Trump's announcement of a 90-day pause on higher tariffs, three-month futures dropped to a near five-year low of US$ 14,015 per ton, less than half the most recent peak of US$ 31,275 in November 2022. However, the price has slightly recovered since.

Nickel is primarily used in high-density batteries for long-range EV models. Indonesia imposed a permanent ban on exports of unprocessed ores in 2020 to attract investment.

As a result, dozens of nickel smelters, mostly backed by Chinese companies, were established in key producing regions on the islands of Sulawesi and Maluku.

Industry players gathered at the Argus Nickel Indonesia Conference on the resort island of Bali in the past two days presented a negative outlook, partly due to slowing demand from the Asian EV sector.

"We already saw demand for nickel from Indonesia in the Korean market decline last year, but I expect the demand will drop further this year," said Yu Tack Kim, CEO of Advanced Battery Recycle, a company specialising in recycled batteries, and an adjunct professor at South Korea's Dongshin University. He was speaking on the sidelines of the event.

"Customers don't really want to buy cost-effective EV cars," he further added, referring to models powered by nickel-based batteries.

"They want low-priced EV cars because the EV incentive from the government was reduced in South Korea," he explained, referring to vehicles using lithium ferro phosphate (LFP) batteries that do not contain nickel.

EV sales grew 25% globally to 4.1 million units between January and March, compared with the same period last year. China accounted for more than half of the sales and led the growth with 36%, according to a report by a global research firm.

However, "the battery sector saw a shift in preferences" from nickel-rich battery chemicals to LFP batteries, driven by price competitiveness.

Nickel-based EV batteries continue to see declining demand in China, while LFP batteries are increasing in dominance. LFP batteries are also gaining popularity in other countries.

Yu's comments follow the announcement that South Korean battery maker LG Energy Solution had cancelled further investment plans in Indonesia.

The company had been collaborating with other South Korean and local firms to develop an end-to-end battery supply chain in Southeast Asia's largest economy. Indonesian officials had previously estimated the projects could total US$ 11 billion.

"Taking into account various factors, including market conditions and the investment environment, we have agreed to formally withdraw from the projects," a representative of LG Energy Solution said.

The spokesperson added that the decision would not affect the operations of Indonesia's first EV battery plant, which LG jointly developed with South Korean carmaker Hyundai Motor and opened in July.

Southeast Asia's adoption of EVs has been slow due to the lack of EV infrastructure and limited vehicle options, according to Aisha Daniyal, co-founder and executive secretary of the Malaysia Zero Emission Vehicle Association.

"In ASEAN, the challenge to the industry is mainly the lack of public EV chargers," Daniyal stated.

She also noted that affordable petrol prices in Malaysia and Brunei, due to government subsidies, present another barrier to expanding the regional EV market.

Nickel, particularly the low-grade ore that constitutes most of Indonesia's reserves, remains primarily used in the production of stainless steel for a variety of applications, from cooking utensils to construction materials.

China is a major consumer of stainless steel, so nickel demand from this sector also depends on the country's economic outlook.

"Stainless steel demand in China is expected to slow down as economic growth weakens," said Li Li, a Beijing-based purchasing manager at Trasteel International.

"We are also pessimistic about consumption," she further added, noting that Trump's tariff policy would dampen nickel demand further.

"We expect the U.S. tariff policy to also impact our exports," Li said, explaining that higher tariffs would lead to "weak demand for steel, which could result in a drop in demand for Indonesian nickel this year."