A future made in Australia? China and Indonesia are listening, nickel and dime

While Anthony Albanese rolled out his Future Made in Australia Act, Joko Widodo received Chinese Foreign Minister Wang Yi. Duncan Graham investigating the nickel crash and Indonesia's challenge.

Is anyone in Canberra watching what's happening in Indonesia? This month, last year, government psychics offered a outlook, boasting that revenues from Australian exports of key minerals like lithium and nickel will almost reach the equivalent of the current second largest source of export revenue coal by 2028.

Lulled by sirens, muted critical faculties and calmed worries, the Lucky Country relaxes. The comfort conditions were the future E-power, clean and green. Now the word is red. For ink on BHP's balance sheet.

Workers and investors received the brutal news in February: BHP's Nickel West, a giant group of surface and underground mines as well as concentrators, smelters and refineries around Kalgoorlie, could not compete. It is to write assets of $5.4 billion and risks eliminating more than 2,000 jobs.

The future of BHP's nickel is in uncertainty due to the rising cost of metallurgical coal used to produce the product.

Padlocks closed on the gates of Washington state's gold fields and mines across the country as our friendly neighbor flooded the market to destroy competition, slashing prices by 40 percent.

The speed of change has surprised Australians with their mouths as open-mouthed as the pits closed. However, everything was predictable. During his second term (which began in 2019), President Joko Jokowi Widodo took the market by the throat – then squeezed it.

Meanwhile, Indonesia and China are getting closer. Indonesian President Joko Widodo, known as Jokowi, received Chinese Foreign Minister Wang Yi at the Presidential Palace in Jakarta this week.

The meeting followed a trip by Indonesian Defense Minister and President-elect Prabowo Subianto to Beijing, during which Chinese President Xi Jinping discussed the close ties between Indonesia and China and outlined their shared vision for peace In the region.

The alerts are received coldly

Then there is their shared vision of commerce. What does this mean for Anthony Albanese's aspirations to add value to Australia and manufacture critical minerals like nickel, a project that will soon be enshrined in law via the Australian Made Future Act?

For decades, there have been warnings that the world's top nickel producer was selling itself short, relying on revenue from mining and exporting when the real money came from processing. The same message has long been sent to Australian miners and long ignored.

But the Javanese leader listened, and he soon discovered that Beijing investment bankers and foreign friends were like-minded. Since then, more than $21 billion has been spent on the industry in the mineral-rich provinces of Central Sulawesi and North Moluccas.

By the middle of last year, 43 smelters were running, 28 were under construction and 24 were planned. In total, more than 70,000 workers. Coal-fired power plants are used to bring the ore's melting temperature to 1,450 degrees, which contradicts the claim that the electronics industry is part of the renewable energy club.

Richard Marles' trip to Indonesia – trust us, we're from the Land Down Under and mean you no harm

As part of the deal, Jokowi also banned exports of unprocessed ore. The European Union had relied on Indonesian supplies and therefore protested to the highly ineffective World Trade Organization.

The complaint was upheld and Indonesia appealed but continued to do what it wanted. Australian miners have suggested that their product deserved a higher price because he was clean and the others were dirty; the idea quickly failed on the dollar rock.

The foundries smoked and polluted; the rivers turned red from the runoff. But the fiery streams of pure metal began to cool into ingots carried on pallets to fill factories and warehouses.

What is on the pay slip?

Prices have collapsed. Australia is the world's fifth largest producer of nickel and employs more than 3,000 people. To see why the glut has hollowed out the industry, click this link. No economics degree is required, not even a calculator. Just the basic ability to reason.

This is an official list of this year's minimum wages in Indonesia's 38 provinces. Readily available, it shows wage rates at least 17 times lower than those in Australia.

Indonesian workers are paid monthly. The rate in East Java, an industrialized area around the north coast port and capital Surabaya, is Rp2,165,244. The exchange rate currently puts that sum above $207.

Australia's national minimum wage is $3,531 a month, 17 times more than what Indonesia pays. It will be reviewed on July 1 and will only remain or increase.

These are basics, so salaries are higher in both countries where the skills are needed. But whatever the position, Australia remains far ahead. Statisticians quote Indonesian HR managers earn on average 19 million rupiah ($1,817) per month, less than an Australian pension.

Software engineers receive 12 million rupees ($1,147) while their colleagues in Australia receive seven times that amount; the gap between salaries is too great to dismiss as a statistical incident.

Apologists argue that the cost of living in Australia is so high that incomes must match. The Jakarta PASS is also in the clouds if it was visible. Coughing through the smog and choked traffic of a metropolis is a misery, making Melbourne's rush hour traffic jams feel like Shangri-La.

Do it our way

Wages aren't the only thing bankrupting Australia and Indonesia. Neighboring industry operates with minimal government interference. Superannuation laws, licensing, insurance and environmental controls significantly increase costs in Australia. Likewise, health and safety.

In December, an industrialistaccident in Sulawesi the foundry killed 21 workers. The factory continues to operate. There may be an investigation at some point. Maybe.

Can we compete? Last year, the government spear a $15 billion National Rebuilding Fund to provide debt, equity and guarantee funding to support Australian projects that drive high-value industry.

It's not supposed to be money thrown away. The mandate of the NRF is to target a rate of return of between two and three per cent above the five-year Australian Government bond rate over the medium to long term.

This month Albanian germ upcoming laws to help factories produce clean goods like electric car batteries; it follows a similar thing policy in the United States with the Inflation Reduction Act. Made in Australia is a comforting slogan for nostalgic people.

For 70 years we built our own combustion engine cars (ironically we exported Holdens to Indonesia), but that industry collapsed in 2017 when General Motors Holden, Ford and Toyota collided head-on with cheaper imports.

Today, many popular models are assembled in Thailand, where labor costs are also lower (although slightly higher than Indonesia) and vehicles shipped complete.

Jokowi has similar ideas to Albanese – or perhaps the other way around. His boost to the Indonesian economy was called THE202545 National long-term development plan. This includes downstream processing.

Before we were hit with excess nickel, Jokowi was talk on cooperation and the sale of electric cars – nickel is a major component of batteries. There is a free trade policy, which means exports could be free of customs duties.

Sleepers awake!

When Australian mines began to close, lobbyists swooped in action with the Association of Mining and Exploration Companies lobbying Canberra for a ten per cent production tax credit.

WA Premier Roger Cook (his state is the biggest producer) is reported consider fee relief. The national government is preparing to include nickel on the list of critical minerals.

This means businesses will have “access to funding under the $4 billion Australian Critical Minerals Facility, which provides low-interest loans and associated grant programs”.

Last year, profit attributed to BHP across all its operations was almost $20 billion, down 58% from 2022. The stock price fell to $42 when the shutdown mining was announced, but it is now back above $45.

If all goes well for investors, the Australian public will eventually break the corporate code of “market rule” by keeping businesses running and jobs unprofitable. This is the price to pay for being “Made in Australia”.

The moral of this tale? Boards and lenders should treat government forecasts as blocks of scribbles and conduct their own thorough on-the-ground research.