After emerging from authoritarian rule and dictatorship in 1998, Indonesia’s grip on democracy has remained fragile. However, one thing that is anything but fragile is the country’s stranglehold on global nickel markets.
As the largest and most populous country in South East Asia, it stands the reason Indonesia should be a major regional economic powerhouse. But the careful – yet aggressive – nurturing of its nickel market over several years has now positioned it as a major global player. Estimates vary, but the country is said to be home to more than 42% of global reserves.
Describing the sector as having seen “a dramatic growth”, GlobalData analyst David Kurtz says its share of mined nickel production has risen from 16% in 2018 to around 50% in 2023.
Institute for Energy Economics and Financial Analysis (IEEFA) energy finance specialist Ghee Peh has offered his own impressive set of statistics: “In 2019, Indonesia produced 853,000 tonnes of nickel in mine production [while in] 2024, its nickel in mine production was 2.2 million tonnes (mt), an increase of 158% over the five-year period.” He adds that some estimates suggest that by the end of the decade, annual nickel output will reach just over 3mt, or 65% of the global supply.
But despite this remarkable performance being hard fought for, there are associated problems. In 2014, the Indonesian Government banned exports of nickel ore in the hope of boosting domestic processing capacity. The news raised concerns among some, leading to the country agreeing to certain concessions. The EU took the case to the World Trade Organization, claiming the decision amounted to economic protectionism, violated trade agreements and threatened nickel supply.
Despite that, and the domestic economic negative impact it had, the measure is seen to have achieved its goal of helping develop and mature internal processing infrastructure and markets, meaning the country can now produce processed materials as well as the mined ore itself.
“Indonesia’s exports of nickel derivative products have, naturally, risen substantially, reaching $38–40bn in 2024, according to the Minister of Energy and Mineral Resources, up from $11.9bn in 2020,” says Kurtz. He adds that since 2016 the number of smelters in the country has risen from two to more than 60.
China’s growing influence over Indonesia’s nickel
Currently, the largest facility is situated in the Indonesia Morowali Industrial Park (IMIP) on Sulawesi Island, a site largely designated for use by the country’s nickel industry. However, this facility lifts the lid on another matter that some might feel is cause for concern, given today’s fragmented and often uneasy geopolitical environment.
“Indonesia’s nickel production growth has been made possible by the Chinese,” says Peh. The IMIP is itself a joint venture between China’s Tsingshan Holding Group through Shanghai Decent Investment Group, Bintang Delapan Investment and PT Sulawesi Mining Investment.
Peh adds: “According to Chinese Government statistics, China’s annual direct investment in Indonesia was $4.4bn (31.96bn yuan) in 2021 and $4.5bn in 2022. In August 2024, media reports put the total Chinese investment in Indonesia’s nickel sector as high as $30bn.”
If further evidence were needed of how Chinese involvement has facilitated Indonesia’s journey to become arguably the leader in global nickel production, in 2018, the country announced plans to build a high-pressure acid leach (HPAL) plant at the IMIP.
The proposed $700m project prompted surprise when revealed, as Western companies had tried (and, according to many, failed) to develop and use HPAL technology in this way. Although two years later than planned, in May 2021, it became Indonesia’s first HPAL plant to be commissioned, achieving something with Chinese backing that others couldn’t.
Environmental concerns
Another major concern surrounding Indonesia’s flourishing nickel industry is the environmental impact. Peh says concerns specifically relate to “land grabbing”, the operational activities and the heavy reliance on captive coal plants to fuel smelters. He uses coal captive plants at the Weda Bay Industrial Park (IWIP) and IMIP as an example; the IWIP has 3.4GW of coal-fired capacity from nine units, while the IMIP has 2.6GW from the same number of units.
“Indonesia’s total coal capacity was 51.6GW at the end of 2024, meaning these two nickel production areas account for 12% of the total Indonesian coal plant capacity,” he says.
Speaking with Mining Technology, Mark Mistry, director, public policy and sustainability at the Nickel Institute (NI), an association of leading primary nickel producers, went further, saying reported environmental concerns range from degraded water resources to potential impacts on biodiversity or soil fertility directly affecting local communities.
He added: “There is a lack of accessible and transparent information on nickel exposure in the Indonesian mining regions and its impacts on the community and surrounding environment, making it difficult to conduct a scientifically based assessment of the risks associated with these activities.”
However, the NI is hopeful that steps in the right direction are now being taken, with more effort being made to fill these knowledge gaps and provide a more comprehensive understanding of nickel mining risks to biodiversity, ecosystems and communities.
“There are several regulatory and value chain initiatives at global and regional scale requiring environmental risks to be identified and appropriately managed,” Mistry adds.
Indonesia has itself broadly committed to an energy transition that will see peak emissions by 2035, with net-zero carbon emissions achieved by 2060.
“Nickel miners, producers and industrial parks are considering options to reduce their environmental footprint by, for example, the construction of wind and solar farms for increased use of renewable energy,” he says.
Some examples of work already undertaken include Vale Indonesia, which has 365MW of hydropower capacity, with plants in operation in Larona (a 195MW plant commissioned in 1976); Balambano (a 137MW plant brought onstream in 1999); and Karebbe (a 130MW plant operational since 2011). Harita Nickel also hopes to complete construction of a 300MW solar plant at its nickel processing hub on Obi Island in North Maluku later this year. Before the project, and other measures to cut its reliance on coal at its operations on the island, the company relied on a 960MW coal-fired power plant.
Despite these efforts the NI says that because of the country’s dominance in global nickel supply markets it is “inevitable” that Indonesia will continue to be in the spotlight, particularly thanks to its “remarkable nickel resources” and the need for nickel for the energy transition.
Indonesia’s EV investment and the nickel price decline
The energy transition, believes Peh, is an area the country continues to seek to capitalise on. “The Indonesian Government remains focused on the nickel opportunity and is attracting investments in production capacity along the electric vehicle (EV) supply chain,” he says.
In July 2024, the country’s first battery cell production plant for EVs was opened. The news was the first step in a joint partnership between LG Energy and Hyundai Motor worth almost $10bn (Rp165.76trn) to develop Indonesia’s EV supply chain.
Speaking at the time, Hyundai Motor Group executive chair Euisun Chung said: “Mineral resources of this nation, such as iron and nickel, are important components in batteries that will mobilise millions of EVs globally.”
Whilst the boom in nickel mining and processing has undoubtedly heralded huge economic benefit for Indonesia’s economy, it has had negative impacts too.
“It has been the incredible growth that we have seen in output, which, when accompanied by a slight slowdown in EV demand growth, has led to a steep fall in prices, in turn squeezing out competitors,” says Kurtz. That impact was not restricted to overseas, however, with some local smelters understood to be struggling as prices fell.
As a result, the government is understood to be looking at cutting production quotas issued to mining companies, according to Kurtz. Some market analysts predict that a cut of 40mt will be ordered, bringing nickel supply down to around 200mt, leading to higher prices.
However, others have suggested authorities may even go as low as 150mt. To avoid lower revenues (should the cut be ordered), the belief is the government will ramp up the royalties paid on mined nickel ore from 10% to between 14% and 19%, “effectively ensuring the government revenue is maintained despite lower volumes”, Kurtz adds.
Peh agrees adding that Indonesia’s massive nickel production and the subsequent global price decline highlights the “challenges of balancing production growth and price stability”.
As if to both show its hegemony, in the days after speaking to those contributing to this article, Indonesia’s strategic market grip was on show again as prices rose to a three-month high at the prospect of tightening global supplies.
A footnote, though, is that in early March some industry watchers had raised concerns about what they said was China’s “potentially misleading inventory data”, which had played a part in higher prices. That is a view that will no doubt once again be met with concern as the world moves towards a more volatile geopolitical backdrop, one where minerals are increasingly being touted as a route to peace, or indeed unrest, whichever perspective you hold.
