Nickel executives raise alarm over potential flood of Indonesian imports stemming from free trade agreement

Canada’s new free-trade agreement with Indonesia is causing an uproar in the nickel industry, with some executives saying that Ottawa should be clamping down on the Southeast Asian country, instead of opening up the domestic market to a flood of cheap supply produced at questionable environmental standards.

Earlier this month, International Trade Minister Mary Ng announced the Comprehensive Economic Partnership Agreement, which will see tariffs phased out on many goods between the two countries as of 2026. The trade deal had been in the works for several years.

Canada already has no tariffs on imports of nickel from Indonesia.

CEPA, however, will make it easier for Canadian mining companies to export nickel to Indonesia, with the country agreeing to eliminate or phase out over time, a 5-per-cent tariff on nickel ores and concentrates, as well as several other derivatives of the commodity.

Since Indonesia is already the dominant supplier worldwide of nickel, it is unlikely to need to import nickel from Canada, a much smaller producer, said Martin Turenne, chief executive of Vancouver-based FPX Nickel Corp, which owns the Baptiste nickel project in British Columbia.

Indonesia last year accounted for half of global production of nickel, according to the United States Geological Survey, while Canadian nickel production was only 5 per cent of world output.

“It’s hard to believe any circumstance under which Canada would be exporting nickel to Indonesia,” he said. “That would be like Canada exporting oil to Saudi Arabia.”

Vale Base Metals Ltd., a subsidiary of Brazil’s Vale S.A., a major nickel producer in Canada with mines in Ontario and Newfoundland and Labrador, exports its Canadian nickel to the United States, Europe and some countries in Asia, but not Indonesia.

“Vale Base Metals does not export nickel from Canada to Indonesia, nor do we have any plans to do so,” spokesperson Stuart Weinberg said in an e-mail.

Glencore PLC, GLCNF of Switzerland, the other major nickel producer in Canada, exports all of its nickel to a refinery in Norway.

Mr. Turenne says the real beneficiary of the new trade agreement in the nickel industry will be Indonesia.

Canada currently doesn’t import any nickel from Indonesia, but that is expected to change over the next few years, as several electric-car-battery plants are being built in Ontario and Quebec. Nickel is one of the common inputs for EV batteries.

Ottawa in 2021, as CEPA talks were getting under way, projected that Canadian imports of mineral products from Indonesia would increase by 42 per cent by 2040, and imports of metal products by 18 per cent. The government added that full liberalization of tariffs with Indonesia could see trade increase substantially.

“It raises a question about the desire of the Canadian government to increase imports of nickel from Indonesia that is potentially problematic from an ESG standpoint,” Mr. Turenne said.

The Globe and Mail has reported extensively this year on the environmental devastation that the Indonesian nickel boom is allegedly causing, including extensive deforestation and flooding of farmer’s rice fields, as well as on the industry’s poor health and safety record, including a smelting furnace explosion that killed 21 workers.

Canada has invested billions to build EV battery plants, but has spent far less expanding domestic production of minerals such as nickel, which are the raw materials.

“If Canada is going to ally with Indonesia, it really smacks of our failure to advance our own source of critical minerals,” said Kristan Straub, CEO of Wyloo Canada, owner of the Eagle’s Nest nickel project in Ontario’s Far North.

As companies, such as Wyloo Canada and FPX Nickel, try to steer new production forward, the trade deal with Indonesia will put further pressure on the industry, both executives predict.

Mr. Straub criticized the current federal Liberal government for the apparent hypocrisy of “advocating for responsible development, yet opening up trade agreements to bring in irresponsibly sourced materials into Canada.”

Ms. Ng declined an interview request with The Globe and Mail and the International Trade Ministry did not respond to a request for comment.

Indonesia’s booming nickel industry has seen the country flood the global market, driving down the commodity price to such an extent as to sideline Australia’s BHP Group Ltd., the world’s biggest mining company, out of the market. More than 80 per cent of Indonesia’s nickel production is controlled by Chinese companies, according to Benchmark Mineral Intelligence Ltd.

In April, then-deputy-prime-minister Chrystia Freeland said that intentional flooding in the nickel market is driving Canadian companies, and those of Canada’s allies, out of business.

At the time, she said that Canada was looking at options to protect its economic interests. While Ottawa has followed Washington’s lead in applying a 25-per-cent tariff on aluminum and steel products coming from China, it has not levied new tariffs on nickel imports from either China or Indonesia. In the fall economic statement, the government said it is planning to impose new tariffs on certain critical minerals imports from China in early 2025. It is unknown whether that will include nickel.

Mr. Turenne said that Canada should take action against imports from all high-carbon commodity producers, irrespective of where the nickel originated. He pointed to the European Union’s Carbon Border Adjustment Mechanism that, starting in 2026, will impose a carbon tax on imports of many carbon-intensive commodities. The levy will aim to level the playing field between countries such as Indonesia, which has a questionable environmental record, and European miners where standards are higher.

The EU in 2027 will also roll out a digital battery passport that will detail the carbon footprint of the battery, and trace the provenance of the commodities used in its production. The passport will increase supply chain transparency, and is something that Canada should emulate, Mr. Turenne said.