Indonesia: Critical Minerals Profile
World's largest nickel producer using export bans to build domestic downstream processing industries.
Overview
Indonesia has transformed itself into the world's dominant nickel producer through an aggressive industrial strategy centered on raw mineral export bans. The country's 2014 ban on nickel ore exports, which was temporarily relaxed and then reimposed in 2020, forced downstream processing investment into Indonesia by denying global smelters access to the country's vast laterite nickel ore deposits. This strategy attracted over $30 billion in investment, predominantly from Chinese companies, in nickel pig iron and ferronickel smelting facilities, and more recently in high-pressure acid leach plants that produce battery-grade nickel sulfate. Indonesia now produces over 50% of the world's mined nickel and is rapidly expanding its share of processed nickel for the battery supply chain. The country has applied the same export ban logic to bauxite and is considering restrictions on other minerals including copper and tin.
Key Minerals and Resources
Indonesia's critical mineral profile is defined by its endowment of nickel, tin, cobalt, bauxite, copper, gold, and manganese. These minerals position the country as a significant global supplier in supply chains spanning the energy transition, advanced manufacturing, and defense sectors.
Mining and Production
Indonesia's mining sector has been transformed by the government's industrial policy of banning raw mineral ore exports to force domestic processing. The nickel sector is the most dramatic example, with Indonesian nickel ore production feeding a rapidly expanding network of smelters, ferronickel plants, and high-pressure acid leach facilities, predominantly built and operated by Chinese companies including Tsingshan, Huayou Cobalt, and CATL partners. The country now hosts the world's largest concentration of nickel processing capacity. Tin mining in Indonesia, centered on Bangka and Belitung islands, is conducted by both state-owned PT Timah and numerous small-scale and artisanal miners. Indonesia's bauxite sector is following a similar trajectory to nickel, with an export ban driving investment in domestic alumina refining. The country's mining regulatory framework has undergone significant changes in recent years, with new mining laws adjusting licensing terms and fiscal regimes.
Policy and Regulation
Indonesia's mineral policy is defined by its aggressive use of export bans to force downstream processing investment. The government has banned or restricted exports of nickel ore, bauxite, copper concentrate, and tin ore at various times, requiring companies to process minerals domestically before export. This resource nationalist approach has successfully attracted tens of billions of dollars in smelting and refining investment, predominantly from Chinese companies. Indonesia's mining sector is governed by the 2009 Mining Law as amended, with mineral business licenses granted by national and regional authorities. The government has signaled intent to apply export restriction policies to additional minerals and has created designated industrial zones for mineral processing. Environmental and social governance challenges, including deforestation from nickel mining, tailings management, and community displacement, are growing concerns that could affect the sector's international reputation and market access.
International Partnerships
Indonesia's mineral partnerships are shaped by its resource nationalist policies, which prioritize domestic processing over raw material exports. China is Indonesia's largest mineral investment partner, with Chinese companies dominating the nickel processing sector. However, Indonesia has also engaged with the United States, South Korea, Japan, and the European Union on mineral supply chain cooperation, including discussions on responsible nickel supply for EV batteries. Indonesia has signed bilateral mineral agreements with several consuming nations and participates in ASEAN regional discussions on mineral governance. The country has leveraged its nickel dominance to negotiate favorable terms in bilateral relationships, including discussions with the United States on a Critical Minerals Agreement that would qualify Indonesian nickel for IRA tax credit benefits.
Supply Chain Role
Indonesia occupies a pivotal position in global critical mineral supply chains due to its dominance in one or more essential minerals. The country's production is so concentrated in specific materials that disruptions, whether from political instability, policy changes, or operational issues, can ripple through global markets and affect manufacturers worldwide. Indonesia's supply chain strategy is evolving as the government seeks to capture more value from its mineral resources through domestic processing requirements and higher state revenue shares. This evolution creates both opportunities and risks for global supply chains, as increased domestic processing can improve supply reliability but policy uncertainty and governance challenges can also create new vulnerabilities.
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