Simply over a decade in the past, Bahodopi, a distant district in japanese Indonesia, was a tangle of lush, tropical forest. There have been no paved roads nor 24-hour electrical energy. When executives from nickel mining corporations visited to survey the world’s then largely untapped reserves, they stayed at modest inns lit by candles.
All of that started to alter in 2014 when the Indonesian authorities took the drastic step of saying a ban on all exports of uncooked nickel — the metallic that’s important to the power transition due to its use in batteries for electrical automobiles.
The choice inspired Chinese language firms, led by metal large Tsingshan Holding Group, to spend billions of {dollars} to arrange processing vegetation in Bahodopi and throughout different elements of the south-east Asian nation of 281mn individuals.
At this time, Bahodopi is dwelling to the world’s largest nickel processing web site: Indonesia Morowali Industrial Park. Majority owned by China’s Tsingshan, the park spans over 4,000 hectares and has dozens of nickel smelters and metal vegetation, in addition to its personal port and airport.
“This was wilderness. Now the economic system has immediately jumped,” says Sahar, a former worker on the nickel web site who rents out dormitories to the Indonesians who come from all around the nation to work on the industrial park.
The transformation is a exceptional turnaround for a rustic {that a} decade in the past was not even a significant participant in nickel. Though Indonesia held the world’s largest reserves — about 55mn tonnes as of 2024, in line with the US Geological Survey — most of it was low-grade nickel that it had not but found out tips on how to course of effectively.
However with the assistance of Chinese language expertise, big funding from Beijing and a dose of protectionism, Indonesia has gained management of the market and cemented itself because the epicentre of worldwide nickel manufacturing for years to come back.
Final yr, Indonesia accounted for 61 per cent of the worldwide refined nickel provide up from simply 6 per cent in 2015, in line with Macquarie, the Australian financial institution and asset supervisor. Its market share is predicted to develop to 74 per cent by 2028.
This implies Indonesia now controls extra of the world’s provide of nickel than Opec did of oil on the cartel’s peak within the Nineteen Seventies — then round half of worldwide crude oil output.
And it has achieved this place of market dominance simply in the mean time when new clients are desperately making an attempt to safe dependable provides. Not solely are carmakers like Tesla, Ford and Volkswagen racing to supply the metallic for lithium-ion batteries, nickel can also be extensively utilized in smartphones and different electronics — in addition to being an important ingredient in chrome steel.
“We wish to suppose Indonesia is to nickel what the Center East is to grease and fuel or Western Australia is to iron ore,” says Justin Werner, managing director of Nickel Industries, an Australia-listed firm with mining and smelting belongings in Morowali and different elements of Indonesia. “I actually don’t suppose there’s anybody that can be capable to problem that dominance.”
This dramatic development has prompted some complaints. European governments have accused Indonesia of utilizing extreme protectionism, whereas Indonesian nickel has been criticised for being “soiled” as a result of deforestation and the usage of coal-fired vegetation, claims that Indonesia disputes.
It has additionally created a conundrum for western nations making an attempt to construct any important mineral provide chain with out Beijing.
For the worldwide mining business, this whirlwind development has raised issues over provide focus — and the results of any potential disruption.
Surging manufacturing in Indonesia has worn out competitors from firms similar to Australian mining group BHP and dramatically reshaped the worldwide provide chain.
By flooding the market and driving down costs, the Sino-Indonesian partnership has made it a lot more durable for rivals to provide the metallic economically elsewhere on this planet.
How the Indonesian authorities wields its affect to regulate the market can be essential for what occurs subsequent on all the things from nickel costs to the way forward for mining investments in different elements of the world.
“The place the Indonesian authorities is trying to play is to develop into, successfully, the Opec of nickel,” says unbiased nickel marketing consultant Lyle Trytten.
However that type of energy comes with accountability. “Such as you see with Opec . . . it’s important to be keen to chop your personal manufacturing to regulate costs,” he provides.
Earlier than 2014, most of Indonesia’s nickel ore was bought to nickel and metal manufacturing vegetation in China. However with its sights set on producing extra income from its pure sources, Jakarta needed to discover a contemporary method.
“No person actually believed that Indonesia could be such a dominant power within the nickel market,” says Jim Lennon, an analyst at Macquarie, who has been monitoring the metallic for round 45 years.
However regardless of some resistance at dwelling, a complete ban on exports of nickel got here into impact in 2020 beneath then President Joko Widodo setting the stage for Indonesia’s nickel increase.
Enormous investments got here from Chinese language metal, nickel and battery producers, together with Tsingshan, CATL and Lygend, who partnered with Indonesian mining firms to arrange processing amenities. Chinese language stakeholders management over 75 per cent of Indonesia’s refining capability, in line with a latest report by C4ADS, a Washington-based safety non revenue.
Not solely did the businesses convey capital, additionally they introduced the data to course of Indonesia’s low-grade nickel reserves shortly and profitably.
Chinese language investments and expertise have “actually been a really massive a part of [Indonesia’s] success”, says Werner, of Nickel Industries.
The Chinese language had made developments in rotary kiln electrical furnaces, which turns nickel ore into uncooked materials for metal. That they had additionally mastered the high-pressure acid leach expertise, a refining course of that converts low grade nickel ore to battery-grade — a process that western firms had struggled with for years.
“The expertise itself has been round for a very long time . . . [but] it’s the Chinese language who’ve been capable of efficiently enhance it and roll it out at scale,” provides Werner.
However the export ban garnered world criticism and was challenged on the World Commerce Group by the EU, which argued the restrictions have been unfairly harming its chrome steel business.
Eramet, a French miner working in Indonesia, admitted final yr that it has develop into nearly unattainable for western firms to run worthwhile nickel processing operations with out China’s assist.
Nickel mines elsewhere on this planet owned by western firms are usually older, much less environment friendly and dearer to run, analysts say. In addition they depend on dearer labour in addition to greater prices of capital. In the meantime, Chinese language firms can construct smelters shortly and hit full capability inside a yr or much less, whereas western firms take roughly three to 5 years or extra.
In different phrases, Indonesia’s explosive development has been the undoing of the remainder of the business. Its fast growth has pushed down nickel costs to under $16,000 per tonne.
BHP, as soon as one of many world’s largest nickel producers, is among the many miners which have closed their nickel operations, blaming a “vital oversupply”. Australia’s Wyloo, run by billionaire Andrew Forrest, has additionally closed mines, whereas Brazilian agency Vale has launched a strategic evaluate of its nickel belongings in Thompson, Canada, together with a potential sale.
“Over 10 to fifteen per cent of the remainder of the world has gone out of enterprise,” says Lennon. In response to his estimates, Indonesian manufacturing rose by 1.5mn tonnes between 2020 and 2024, whereas the remainder of the world fell by 500,000 tonnes.
In 2022, Jakarta floated the concept of an Opec-like cartel for nickel alongside different producing nations although it by no means took off. However given its de facto monopoly, business consultants say Indonesia can single-handedly affect pricing anyway.
Indonesian officers have not too long ago mentioned they might be comfy with nickel costs at $18,000-$19,000 per tonne — greater than present ranges however nonetheless not sufficient to make nickel manufacturing worthwhile for others.
Costs must keep above $22,000 per tonne over a substantial time frame for mines outdoors Indonesia to restart, says Mark Selby, chief govt of the Canada Nickel Firm.
Final month, Indonesia mentioned it could minimize mining quotas in an try to spice up costs, however some analysts say Jakarta could be cautious of pushing up costs too excessive as that might incentivise investments in mines in different elements of the world and threaten its dominance.
Limiting quotas would be sure that “the quantity produced doesn’t trigger a steady decline within the worth of the commodity . . . [making it] extra secure within the world market,” Tri Winarno from the ministry of power and mineral sources, beforehand instructed the Monetary Instances.
However analysts warn Indonesia should tread fastidiously. The latest feedback on decreasing mining quotas additionally create uncertainties that would additionally push consumers to search for alternate options to nickel. Carmakers, as an example, might transfer to nickel-free choices similar to lithium iron phosphate (LFP) batteries, that are already seeing a big improve in demand in China.
“It’s a really harmful recreation to be taking part in . . . to create the notion that you may minimize off provide,” says Macquarie’s Lennon.
For now, demand for nickel remains to be anticipated to develop and, with it, Indonesia’s management.
The Worldwide Nickel Research Group predicts an uptick of round 5 per cent this yr, whereas Macquarie estimates that demand will develop at a median of 6 per cent yearly within the years to 2030. Whereas demand development for EVs has slowed down globally, consumption of chrome steel — which accounts for two-thirds of nickel demand — is predicted to extend.
The shortage of credible alternate options to the Sino-Indonesian dominance in nickel additionally means it’s getting an increasing number of tough for the west to diversify from Beijing. Most western firms don’t straight supply from Indonesia, however they find yourself shopping for from Chinese language refiners or battery makers who supply the metallic primarily from Indonesia.
An escalating commerce struggle between the US and its buying and selling companions beneath President Donald Trump has added to the provision dangers. There’s broad settlement amongst analysts that China might use its affect over important mineral provide chains to hit again on the US.
Beijing has already positioned restrictions on exports of some minerals utilized in clear power and defence — although the checklist doesn’t embody nickel — in response to a blanket extra 10 per cent tariff imposed by Trump on all Chinese language imports.
There are restricted choices elsewhere. The Philippines, which shares a maritime border with Indonesia, is pitching itself instead and vying for a important minerals settlement with the US. However the nation, which has simply 4.8mn tonnes of nickel reserves, is but to see the type of funding that Indonesia has acquired. Nickel manufacturing in New Caledonia, a French abroad territory within the Pacific, has been hit as a result of civil unrest.
“Sourcing nickel from non-Indonesian, non-Chinese language-controlled operations can be very tough for western firms,” says Bryan Bille, coverage and geopolitical principal at Benchmark Mineral Intelligence.
“Friendshoring” is one choice for western governments to assist nickel initiatives in Australia or Canada, although the present low costs would nonetheless make it difficult, he provides.
Others within the business say there must be political will to assist new nickel initiatives whether or not inside Indonesia or past. “Crucial minerals are about nationwide safety, it’s about getting China out of the provision chain,” argues Selby, of Canada Nickel, who’s hoping to boost “a bulk of” $2.5bn in funding for a brand new nickel mine from authorities sources. “We want nickel from some other place aside from Indonesia.”
The scenario can also be sophisticated by China’s rising home use of LFP batteries in EVs, which primarily means Chinese language firms are producing battery-grade nickel solely to promote to the west, the place nickel-based batteries are extra prevalent.
“Nickel end-use demand development is more and more shifting from east to west . . . This creates an uncommon place the place Chinese language firms are increasing manufacturing in Indonesia to fulfill the wants of western shoppers, a scenario which has vital geopolitical implications,” BMO, the Canadian funding financial institution, mentioned in February.
However American and European firms have thus far been reluctant to spend money on Indonesia as a result of Chinese language dominance and issues over environmental harm.
To remain aggressive, some non-Indonesian producers need inexperienced credentials to be considered. Some have additionally criticised the London Metallic Change, the world centre for the buying and selling of commercial metals, for permitting numerous new Chinese language and Indonesian nickel producers to provide its world community of warehouses following the 2022 nickel disaster.
BHP and Forrest argued final yr that the LME ought to differentiate between “soiled” and “inexperienced” nickel, and place a premium on sustainable manufacturing. However the marketplace for so-called inexperienced nickel is “not but giant sufficient to assist vibrant buying and selling in a devoted inexperienced futures contract”, the LME has mentioned.
Indonesia has been accused of widespread deforestation, air and water air pollution. There was a rising variety of employee fatalities from lax security practices, employees have instructed the FT, and final yr, the US Division of Labor added Indonesian nickel to its checklist of products made with compelled labour. The federal government has rejected allegations of compelled labour, and has beforehand blamed negligence in implementing industrial security requirements for an accident at one Tsingshan facility.
The few western firms that do function in Indonesia — together with Vale and Eramet — work in partnership with Chinese language firms.
“Each nation has to develop into sensible. As a result of no person has the capital, sources and expertise in a single single nation,” says one Indonesian authorities official. “So let’s sit down and focus on how we will really safe nickel provide for the US market or the European market.”
Indonesia has been calling for a commerce settlement on important minerals with the US since 2023, however with out success. Below Trump, Indonesia could be prone to face an uphill battle to push it via, given Chinese language dominance.
However promoting to the west means Indonesia will in the end have to enhance its sustainability requirements. There’s “rising demand for sustainability from European consumers”, says one Indonesian business govt. “In case you are solely promoting to the Chinese language, the [environmental, social and governance] necessities will not be so inflexible.”
In Bahodopi, the huge industrial park in Morowali remains to be increasing, regardless of protests from residents who complain about air air pollution and the affect on fishing. Employees have staged demonstrations calling for greater security requirements.
For the second, nonetheless, there’s little signal of an finish to Indonesia’s “Opec period”. In terms of nickel, says one mining marketing consultant, “they’re the market makers”.
Further reporting by Diana Mariska in Jakarta
