Just over a decade ago, Bahodopi, a remote district in eastern Indonesia, was a tangle of lush, tropical forest. There were no paved roads nor 24-hour electricity. When executives from nickel mining firms visited to survey the area’s then largely untapped reserves, they stayed at modest hotels lit by candles.
All of that began to change in 2014 when the Indonesian government took the drastic step of announcing a ban on all exports of raw nickel — the metal that is critical to the energy transition because of its use in batteries for electric vehicles.
The decision encouraged Chinese companies, led by steel giant Tsingshan Holding Group, to spend billions of dollars to set up processing plants in Bahodopi and across other parts of the south-east Asian country of 281mn people.
Today, Bahodopi is home to the world’s largest nickel processing 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 steel plants, as well as its own port and airport.
“This used to be wilderness. Now the economy has suddenly jumped,” says Sahar, a former employee at the nickel site who rents out dormitories to the Indonesians who come from all over the country to work at the industrial park.
The transformation is a remarkable turnaround for a country that a decade ago was not even a major player in nickel. Although Indonesia held the world’s largest reserves — about 55mn tonnes as of 2024, according to the US Geological Survey — most of it was low-grade nickel that it had not yet figured out how to process efficiently.
But with the help of Chinese technology, huge investment from Beijing and a dose of protectionism, Indonesia has gained control of the market and cemented itself as the epicentre of global nickel production for years to come.
Last year, Indonesia accounted for 61 per cent of the global refined nickel supply up from just 6 per cent in 2015, according to Macquarie, the Australian bank and asset manager. Its market share is expected to grow to 74 per cent by 2028.
This means Indonesia now controls more of the world’s supply of nickel than Opec did of oil at the cartel’s peak in the 1970s — then around half of global crude oil output.
And it has achieved this position of market dominance just at the moment when new customers are desperately trying to secure reliable supplies. Not only are carmakers like Tesla, Ford and Volkswagen racing to source the metal for lithium-ion batteries, nickel is also widely used in smartphones and other electronics — as well as being a vital ingredient in stainless steel.
“We like to think Indonesia is to nickel what the Middle East is to oil and gas or Western Australia is to iron ore,” says Justin Werner, managing director of Nickel Industries, an Australia-listed company with mining and smelting assets in Morowali and other parts of Indonesia. “I really don’t think there is anyone that will be able to challenge that dominance.”
This dramatic growth has prompted some complaints. European governments have accused Indonesia of using excessive protectionism, while Indonesian nickel has been criticised for being “dirty” due to deforestation and the use of coal-fired plants, claims that Indonesia disputes.
It has also created a conundrum for western countries trying to build any critical mineral supply chain without Beijing.
For the global mining industry, this whirlwind growth has raised concerns over supply concentration — and the consequences of any possible disruption.
Surging production in Indonesia has wiped out competition from companies such as Australian mining group BHP and dramatically reshaped the global supply chain.
By flooding the market and driving down prices, the Sino-Indonesian partnership has made it much harder for rivals to produce the metal economically elsewhere in the world.
How the Indonesian government wields its influence to control the market will be crucial for what happens next on everything from nickel prices to the future of mining investments in other parts of the world.
“Where the Indonesian government is looking to play is to become, effectively, the Opec of nickel,” says independent nickel consultant Lyle Trytten.
But that kind of power comes with responsibility. “Like you see with Opec . . . you have to be willing to cut your own production to control prices,” he adds.
Before 2014, most of Indonesia’s nickel ore was sold to nickel and steel manufacturing plants in China. But with its sights set on generating more revenue from its natural resources, Jakarta had to find a fresh approach.
“Nobody really believed that Indonesia would be such a dominant force in the nickel market,” says Jim Lennon, an analyst at Macquarie, who has been tracking the metal for around 45 years.
But despite some resistance at home, a total ban on exports of nickel came into effect in 2020 under then President Joko Widodo setting the stage for Indonesia’s nickel boom.
Huge investments came from Chinese steel, nickel and battery manufacturers, including Tsingshan, CATL and Lygend, who partnered with Indonesian mining companies to set up processing facilities. Chinese stakeholders control over 75 per cent of Indonesia’s refining capacity, according to a recent report by C4ADS, a Washington-based security non profit.
Not only did the companies bring capital, they also brought the knowledge to process Indonesia’s low-grade nickel reserves quickly and profitably.
Chinese investments and technology have “certainly been a very big part of [Indonesia’s] success”, says Werner, of Nickel Industries.
The Chinese had made advancements in rotary kiln electric furnaces, which turns nickel ore into raw material for steel. They had also mastered the high-pressure acid leach technology, a refining process that converts low grade nickel ore to battery-grade — a procedure that western companies had struggled with for years.
“The technology itself has been around for a long time . . . [but] it’s the Chinese who have been able to successfully improve it and roll it out at scale,” adds Werner.
But the export ban garnered global criticism and was challenged at the World Trade Organization by the EU, which argued the restrictions were unfairly harming its stainless steel industry.
Eramet, a French miner operating in Indonesia, admitted last year that it has become virtually impossible for western companies to run profitable nickel processing operations without China’s help.
Nickel mines elsewhere in the world owned by western companies tend to be older, less efficient and more expensive to run, analysts say. They also rely on more expensive labour as well as higher costs of capital. Meanwhile, Chinese companies can build smelters quickly and hit full capacity within a year or less, while western companies take roughly three to five years or more.
In other words, Indonesia’s explosive growth has been the undoing of the rest of the industry. Its rapid expansion has driven down nickel prices to below $16,000 per tonne.
BHP, once one of the world’s largest nickel producers, is among the miners that have closed their nickel operations, blaming a “significant oversupply”. Australia’s Wyloo, run by billionaire Andrew Forrest, has also closed mines, while Brazilian firm Vale has launched a strategic review of its nickel assets in Thompson, Canada, including a possible sale.
“Over 10 to 15 per cent of the rest of the world has gone out of business,” says Lennon. According to his estimates, Indonesian production rose by 1.5mn tonnes between 2020 and 2024, while the rest of the world fell by 500,000 tonnes.
In 2022, Jakarta floated the idea of an Opec-like cartel for nickel alongside other producing countries though it never took off. But given its de facto monopoly, industry experts say Indonesia can single-handedly influence pricing anyway.
Indonesian officials have recently said they would be comfortable with nickel prices at $18,000-$19,000 per tonne — higher than current levels but still not enough to make nickel production profitable for others.
Prices would have to stay above $22,000 per tonne over a considerable period of time for mines outside Indonesia to restart, says Mark Selby, chief executive of the Canada Nickel Company.
Last month, Indonesia said it would cut mining quotas in an attempt to boost prices, but some analysts say Jakarta would be wary of pushing up prices too high as that would incentivise investments in mines in other parts of the world and threaten its dominance.
Limiting quotas would ensure that “the volume produced does not cause a continuous decline in the price of the commodity . . . [making it] more stable in the global market,” Tri Winarno from the ministry of energy and mineral resources, previously told the Financial Times.
But analysts warn Indonesia must tread carefully. The recent comments on reducing mining quotas also create uncertainties that could also push buyers to look for alternatives to nickel. Carmakers, for instance, could move to nickel-free options such as lithium iron phosphate (LFP) batteries, which are already seeing a significant increase in demand in China.
“It’s a very dangerous game to be playing . . . to create the perception that you could cut off supply,” says Macquarie’s Lennon.
For now, demand for nickel is still expected to grow and, with it, Indonesia’s control.
The International Nickel Study Group predicts an uptick of around 5 per cent this year, while Macquarie estimates that demand will grow at an average of 6 per cent annually in the years to 2030. While demand growth for EVs has slowed down globally, consumption of stainless steel — which accounts for two-thirds of nickel demand — is expected to increase.
The lack of credible alternatives to the Sino-Indonesian dominance in nickel also means it is getting more and more difficult for the west to diversify from Beijing. Most western companies do not directly source from Indonesia, but they end up buying from Chinese refiners or battery makers who source the metal primarily from Indonesia.
An escalating trade war between the US and its trading partners under President Donald Trump has added to the supply risks. There is broad agreement among analysts that China could use its influence over critical mineral supply chains to hit back at the US.
Beijing has already placed restrictions on exports of some minerals used in clean energy and defence — though the list does not include nickel — in response to a blanket additional 10 per cent tariff imposed by Trump on all Chinese imports.
There are limited options elsewhere. The Philippines, which shares a maritime border with Indonesia, is pitching itself as an alternative and vying for a critical minerals agreement with the US. But the country, which has just 4.8mn tonnes of nickel reserves, is yet to see the kind of investment that Indonesia has received. Nickel production in New Caledonia, a French overseas territory in the Pacific, has been hit due to civil unrest.
“Sourcing nickel from non-Indonesian, non-Chinese-controlled operations will be very difficult for western companies,” says Bryan Bille, policy and geopolitical principal at Benchmark Mineral Intelligence.
“Friendshoring” is one option for western governments to support nickel projects in Australia or Canada, though the current low prices would still make it challenging, he adds.
Others in the industry say there needs to be political will to support new nickel projects whether inside Indonesia or beyond. “Critical minerals are about national security, it’s about getting China out of the supply chain,” argues Selby, of Canada Nickel, who is hoping to raise “a bulk of” $2.5bn in funding for a new nickel mine from government sources. “We need nickel from somewhere else other than Indonesia.”
The situation is also complicated by China’s increasing domestic use of LFP batteries in EVs, which essentially means Chinese companies are producing battery-grade nickel only to sell to the west, where nickel-based batteries are more prevalent.
“Nickel end-use demand growth is increasingly shifting from east to west . . . This creates an unusual position where Chinese companies are expanding production in Indonesia to meet the needs of western consumers, a situation which has significant geopolitical implications,” BMO, the Canadian investment bank, said in February.
But American and European companies have so far been reluctant to invest in Indonesia due to Chinese dominance and concerns over environmental damage.
To stay competitive, some non-Indonesian producers want green credentials to be taken into consideration. Some have also criticised the London Metal Exchange, the world centre for the trading of industrial metals, for allowing a large number of new Chinese and Indonesian nickel producers to supply its global network of warehouses following the 2022 nickel crisis.
BHP and Forrest argued last year that the LME should differentiate between “dirty” and “green” nickel, and place a premium on sustainable production. But the market for so-called green nickel is “not yet large enough to support vibrant trading in a dedicated green futures contract”, the LME has said.
Indonesia has been accused of widespread deforestation, air and water pollution. There has been a rising number of worker fatalities from lax safety practices, workers have told the FT, and last year, the US Department of Labor added Indonesian nickel to its list of goods made with forced labour. The government has rejected allegations of forced labour, and has previously blamed negligence in implementing industrial safety standards for an accident at one Tsingshan facility.
The few western companies that do operate in Indonesia — including Vale and Eramet — work in partnership with Chinese companies.
“Every country has to become realistic. Because nobody has the capital, resources and technology in one single country,” says one Indonesian government official. “So let’s sit down and discuss how we can actually secure nickel supply for the US market or the European market.”
Indonesia has been calling for a trade agreement on critical minerals with the US since 2023, but without success. Under Trump, Indonesia would be likely to face an uphill battle to push it through, given Chinese dominance.
But selling to the west means Indonesia will ultimately have to improve its sustainability standards. There is “increasing demand for sustainability from European buyers”, says one Indonesian industry executive. “If you are only selling to the Chinese, the [environmental, social and governance] requirements are not so rigid.”
In Bahodopi, the massive industrial park in Morowali is still expanding, despite protests from residents who complain about air pollution and the impact on fishing. Workers have staged demonstrations calling for higher safety standards.
For the moment, however, there is little sign of an end to Indonesia’s “Opec era”. When it comes to nickel, says one mining consultant, “they are the market makers”.
Additional reporting by Diana Mariska in Jakarta
https://www.ft.com/content/0bbbe7c7-12a1-43ba-8bef-c5c546367a0e
