Indonesia’s Nickel Industry No Longer Reliant on Chinese Support

This is the inaugural installment of a multi-part series on Indonesia’s nickel sector.

Chinese investors in Indonesia’s nickel sector are issuing a familiar caution: rectify regulatory uncertainty, or risk withdrawal. Yet this cautionary stance rests on the premise that Jakarta lacks the institutional capacity to manage its own nickel industry — a premise that no longer holds.

In May, the China Chamber of Commerce in Indonesia dispatched an open letter to President Prabowo Subianto, warning that abrupt policy changes — ranging from mining‑quota reductions to new foreign‑exchange retention rules — were eroding investor confidence.

Leading Chinese smelters have recently curtailed production and postponed expansion plans, signaling that if these firms lose patience, they may withdraw from the country, jeopardizing Indonesia’s downstream ambitions to capture greater value from its mineral resources.

The implied threat assumes Indonesia lacks the institutions necessary to advance the industry without a dominant Chinese or other foreign partner steering it. That assumption, however, does not align with the capabilities Jakarta has cultivated over the past two years.

Danantara, Indonesia’s newly established sovereign wealth fund, unveiled in 2025 a plan to develop approximately 26 downstream projects valued at around $12.4 billion, encompassing mining, metals, energy, and agriculture. All initiatives are expressly designed to retain more value domestically rather than export raw or semi‑processed resources.

The state mining enterprise MIND ID, together with an increasing number of domestic private firms, is poised to assume larger roles alongside Danantara — not as junior partners awaiting foreign capital to set the terms, but as co‑owners structuring the projects themselves.

The segment with the greatest growth potential is what industry analysts term the midstream — encompassing activities from ore extraction to the production of finished battery cells, including precursor material synthesis, battery cathode manufacturing, specialty chemicals, recycling, process engineering, logistics, and equipment maintenance.

These stages typically offer higher returns and demand more specialized labor than mining or basic smelting. They also represent the area where a decade of Chinese investment has been least concentrated, with most capital directed toward nickel pig iron, ferronickel, and, more recently, mixed hydroxide precipitate — the earlier, more commoditized stages of the value chain.

The cost of this gap is evident in Indonesia’s trade statistics. The nation is a net importer of advanced battery systems: an estimated 85 % to 95 % of domestic demand was satisfied through imports as of 2026, with roughly 60 % to 70 % of that import value originating from China.

Consequently, a country that holds some of the world’s largest nickel reserves continues to re‑import finished products manufactured abroad using cheaper feedstocks, because the domestic midstream has not expanded sufficiently to intercept ore before it exits the country in semi‑processed form.

The prevailing chemical dynamics exacerbate this mismatch. In the most recent tracked year, Indonesia sold approximately 43,000 electric vehicles — predominantly from Chinese manufacturers such as BYD, Wuling, Chery, and Neta — and about 90 % of these vehicles were equipped with lithium‑iron phosphate batteries, a chemistry that does not employ nickel.

BYD’s new nickel‑free Datang SUV garnered 150,000 pre‑orders in China within two months of its launch this year, illustrating that the same Chinese enterprises constructing Indonesia’s smelters are accelerating away from the nickel‑intensive battery chemistries that Indonesia’s strategy had assumed would dominate the market.

Ferronickel production continued to rise, meeting a market that increasingly no longer required it for battery applications — a key factor behind price declines despite record export volumes.

Danantara’s activities over the past year demonstrate that bridging the midstream gap does not necessitate choosing between partners. In May 2025, Danantara and Indonesia’s other sovereign fund, INA, signed a memorandum with France’s Eramet to develop an integrated nickel‑to‑battery investment platform, with discussions ongoing on specific projects, including further development at Weda Bay, slated to continue into the second half of the year.

Three months later, Danantara announced a separate cooperation agreement with China’s GEM to develop a nickel processing hub. Engaging with both a French miner and a Chinese firm within the same year exemplifies genuine diversification: it does not exclude any single nation, but rather ensures that Indonesian institutions hold a decisive voice regardless of which foreign partner emerges next.

None of this implies that Chinese capital has become expendable, nor that domestic firms can instantly replace the output of a decade of China‑led foreign investment. Financing large‑scale industrial projects remains capital‑intensive, and many Indonesian companies still lack the scale or established customer relationships needed to compete independently in global battery supply chains.

Nevertheless, MIND ID already possesses a noteworthy track record. Under Indonesian mining law, foreign‑owned mines must eventually transfer majority ownership to Indonesian shareholders.

In July 2024, MIND ID exercised this provision at PT Vale Indonesia, acquiring an additional 14 % stake to become the controlling shareholder at 34 %, while the mine’s output and its foreign technical partners remained intact.

This serves as a functional precedent for the model Danantara seeks to scale across the midstream. The claim that Indonesia has no alternative to China, or that its alternatives to China are still nascent, represents fundamentally different assertions — and only the latter retains validity.

Indonesia now operates a sovereign fund actively financing dozens of downstream projects, a state‑controlled miner with a demonstrable ownership record, and, in the same year as its most substantial quota reductions, new midstream partnerships with both Western and Chinese counterparts.

The more pertinent inquiry for Jakarta is not whether it can withstand a Chinese exit — an exit that, despite Beijing’s grumbling, is not actually materializing — but whether Danantara, MIND ID, and domestic private capital can expand swiftly enough to render such a question increasingly moot.

Bhima Yudhistira Adhinegara is the executive director of the Center of Economic and Law Studies (CELIOS). Muhammad Zulfikar Rakhmat is the director of the China‑Indonesia and MENA‑Indonesia desks at CELIOS.

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