Key Takeaways:
Indonesia now dominates global nickel production, accounting for over half of global output. This surge is driven by an export ban on raw ore and significant Chinese investments.
The Indonesian nickel boom has created a supply glut, driving prices down and threatening nickel production elsewhere. Major mining companies have suspended or liquidated non-Indonesian nickel operations due to low prices.
Western automakers are increasingly investing in Indonesian nickel to secure supply and qualify for Inflation Reduction Act (IRA) credits. However, they often still rely on Chinese partners for cost-effective production methods.
KSG assesses Indonesia's nickel supply market is likely to split into US and China-centred supply chains, leading to a broader division in the global nickel market as Indonesia's market dominance continues to grow. By 2030, China is likely to lose a significant share of Indonesian nickel output, while Western companies are poised to gain ground, driven by the need to secure reliable access to nickel, as well as to IRA credits.
The geopolitical significance of nickel
Nickel is a crucial component of electric vehicle (EV) batteries, and a reliable, affordable supply is vital for scaling up EV production, keeping prices competitive, and advancing clean transportation goals. Since China, the EU, and the US lack significant domestic nickel production, they must rely on major producers like Indonesia, which holds over half of the global market share. This has positioned Indonesia as a key geopolitical player, leveraging its reserves to attract investments from automakers and battery manufacturers in the US, EU, China, and South Korea, all seeking secure access to nickel for EV production. Chinese firms dominate Indonesia's nickel production, increasing US and EU dependence and intensifying Sino-US tensions over critical mineral access.
Indonesian and Chinese global market dominance
Since 2020, Indonesia has significantly increased its nickel production, now accounting for half of global output and creating a supply glut. This follows Indonesia's 2020 export ban on raw nickel ore and substantial Chinese investments under the Belt and Road Initiative (BRI), which boosted Chinese Foreign Direct Investment (FDI) in the country. Major Chinese companies like CATL, Lygend Resources and Technology, Tsingshan Holding Group, and Zhejiang Huayou Cobalt have heavily invested in Indonesian nickel mines, smelters, High-Pressure Acid Leach (HPAL) facilities–—which extract nickel directly from laterite ores—as well as stainless steel and EV battery production, key drivers of nickel demand.
As a result, Indonesia's nickel production surged from 770,000 tons in 2020 to 1.8 million tons in 2023, representing approximately 53% of global output. This oversupply has driven nickel prices down from an average of $25,800 per ton in 2022 to a projected $17,000 per ton in 2024. Indonesia is expected to command 70% of global market share by 2030. Currently, Chinese firms control 82% of Indonesian nickel production.
Chinese investments have significantly reduced nickel production costs in Indonesia. Partnerships with Indonesian companies benefit from cheap labor and energy, as well as high vertical integration across the nickel supply chain—from mining, to smelting and production. Low nickel prices have improved profit margins for battery and stainless steel producers, with Chinese producers profiting more from downstream operations by maintaining low nickel prices through rapid mining.
China’s competitive edge is further strengthened by leadership in HPAL technology, a more efficient method of nickel production. As Indonesia's nickel reserves decline, HPAL technology will likely become increasingly important. Glencore, an early HPAL pioneer, has raised concerns about Western miners’ ability to compete with the latest generation of Chinese HPAL technology.
China's control of Indonesia's nickel production is also facilitating the entry of Chinese EV manufacturers, although capturing market share in Indonesia and using it as an export hub is the main incentive. President Jokowi’s government aims to transform Indonesia into an EV exporter by attracting both Chinese and Western EV manufacturing investments as part of a broader strategy to expand value-added downstream sectors. Chinese EV brands BYD, Chery, Neta, Sokon, and Wuling have either invested or committed to investing in Indonesia.
Growing Western market share in Indonesian nickel production
Over the past two years, Indonesia has seen a surge in Western investments as US, EU, and South Korean automakers sought to secure access to nickel. Specific corporate decisions included:
Hyundai Motor Group, LG Energy Solution, and the Indonesia Battery Corporation opened Indonesia’s first EV battery plant in 2022.
Stellantis entered discussions with Brazil’s Vale and China’s Huayou Cobalt to establish a nickel smelter and a HPAL facility in Indonesia.
Ford partnered with Vale and Huayou to develop an HPAL facility last year.
Volkswagen announced plans to join this initiative and invest in Indonesian nickel projects.
While these investments diversify the ownership of Indonesian nickel output, the involvement of Huayou in completed or proposed deals with Ford, Stellantis, and Volkswagen highlights the reliance of Western EV makers on Chinese investments in Indonesian nickel. HPAL facilities operated by Huayou and other Chinese firms provide significant cost advantages, a crucial factor given the intense competition with low-cost Chinese EVs.
In addition to corporate strategies for securing critical minerals, the IRA is also driving investments by Western battery and EV manufacturers into Indonesian nickel. The IRA offers Clean Vehicle Credits (CVCs) worth $7,500 per EV, with eligibility dependent on sourcing battery-critical minerals from companies with less than 25% ownership by a Foreign Entity of Concern (FEOC), primarily China. Additionally, the commodity exporting country must have a Free Trade Agreement (FTA) with the US.
While Chinese ownership of Indonesian nickel projects and Indonesia's non-FTA status pose significant challenges to Jakarta's ability to fully capitalize on the IRA, Indonesian nickel can still qualify for IRA eligibility through an alternative route. Companies from nations with FTA status or separate trade agreements with the US can access IRA credits, even if the nickel is mined in a non-FTA country like Indonesia, as long as Chinese ownership in the value chain remains below 25%. To attract Western EV and battery manufacturers, Jakarta is encouraging Chinese investors to accept minority stakes in new nickel projects.
Uncertain future for non-Indonesian nickel
The Indonesian nickel glut and subsequent price declines over the past four years have started to hinder the development of nickel production outside Indonesia. Major mining companies have either suspended or liquidated their non-Indonesian nickel operations. This year, BHP halted production at both of its Australian nickel projects until 2027, while Glencore closed and sold its New Caledonian nickel mine. In April, Glencore-backed Horizonte Minerals attempted to sell or liquidate its unfinished Araguaia greenfield nickel project in Brazil, citing escalating costs and weak nickel futures.
Low nickel prices also threaten to stall the development of nickel production in the United States, a marginal player in nickel mining. The downstream effect of the IRA has driven a 67% increase in the US Gigafactory pipeline. However, the upstream and midstream sectors have struggled to keep pace, deepening US reliance on imported critical minerals. Talon Metals' Tamarack nickel mine project in Minnesota faces uncertain prospects in a surplus market where Chinese firms enjoy significant advantages. Meanwhile, Toronto-based Lundin Mining’s Eagle Mine in Michigan—the only currently operating nickel mine in the US—is set to close by 2029, posing the risk of temporarily eliminating US nickel production unless new projects come online.
While nickel output from New Caledonia and Australia—the fourth and fifth largest producers globally—has declined due to Indonesia's nickel boom and political unrest in New Caledonia, the Philippines, the second-largest nickel producer, is positioning itself as an alternative to Chinese-dominated Indonesian nickel. In 2023, the Philippines produced 360,000 tons of nickel, compared to Indonesia’s 1.8 million tons. However, the Philippines has structural advantages for expanding production, as its nickel industry is free of Chinese ownership. Nickel Asia Corp, whose largest shareholder is Japan's Sumitomo Metal Mining, owns the country’s only nickel processing plants. The US and the Philippines are also enhancing economic cooperation, and the US is investing into a new nickel processing plant in the Philippines. Additionally, escalating military tensions with Beijing, coupled with growing economic cooperation with Washington, are pushing the Philippines closer to the Western sphere.
Forward Look:
US-China rivalry
As Indonesia expands its market share in processed nickel, the nickel-cobalt-manganese (NCM) lithium-ion battery supply chain risks becoming increasingly geographically concentrated, making the global auto industry heavily dependent on Indonesia. This concentration exposes global EV production and transport electrification policies to potential disruptions from sudden fluctuations in Indonesian nickel output. KSG assesses that the risk of an Indo-Pacific conflict will increasingly threaten international EV battery supply chains. A China-Taiwan war could significantly disrupt the export of Indonesian processed nickel, impacting the global economy beyond the effects on semiconductor production. Should Philippine nickel production grow substantially, global dependence on Southeast Asia for supply would increase, further heightening the vulnerability of supply chains to potential military escalations in the Pacific region.
Indonesia's nickel supply market is likely to split into US and China-centered supply chains, leading to a broader division in the global nickel market as Indonesia's market dominance continues to grow. By 2030, China is likely to lose a significant share of Indonesian nickel output, while Western companies are poised to gain ground, driven by the need to secure reliable access to nickel as well as to IRA credits. KSG assesses that South Korean and Japanese cathode and battery manufacturers, such as LG Energy Solution, Samsung, and Panasonic—well-established suppliers to the North American market—are likely to become key players in processing Indonesian nickel into IRA-eligible EV batteries.
Ford, Stellantis, and Volkswagen will likely need to reconsider their partnerships with Huayou Cobalt in light of the IRA. Stellantis will likely face strong incentives to limit Huayou’s stake in proposed joint nickel ventures to below 25% due to the IRA. Although the share distribution in the Ford-Vale-Huayou partnership has not been disclosed, Ford’s significant dependence on the US market—following its scaling back in the Chinese passenger EV market—likely makes access to CVCs essential for its future operations. Ford’s dependency on Huayou for HPAL processes is therefore likely to constitute a serious liability.
Western market share in Indonesia nickel
The U.S. election is more likely to impact the pace, rather than the overall direction, of the growing Western market share in Indonesian nickel production. While the outcome could significantly influence the future of the Inflation Reduction Act (IRA), Western involvement in Indonesian nickel is expected to continue expanding regardless. If President Trump wins, provisions such as tax incentives for EVs may be rolled back or defunded, which KSG assesses could hurt U.S. EV sales and reduce the urgency for Western EV and battery manufacturers to secure nickel supplies. However, Trump is likely to maintain China’s designation as a Foreign Entity of Concern (FEOC), keeping pressure on U.S. and Western companies to reduce Chinese ownership in their nickel supply chains. KSG also anticipates that Western investments in Indonesian nickel projects will continue due to corporate concerns over excessive reliance on China, even if IRA incentives are scaled back.
Jakarta's efforts to reduce Chinese ownership in new Indonesian nickel projects are likely to strain Sino-Indonesian relations. Nevertheless, Jakarta will likely press forward in its bid to attract Western investments in processing, battery, and EV production. However, due to the significant role of Chinese FDI and nickel imports for Indonesia, it is unlikely that Jakarta will compel Chinese miners and refiners to reduce their stakes in older nickel projects. KSG also assesses that a US FTA with Indonesia is improbable as long as Chinese ownership in nickel projects remains extensive and ESG concerns persist. Washington’s interest in pursuing an FTA with Indonesia is likely to grow as Chinese market share in Indonesian nickel and other critical minerals diminishes.
Resource nationalism
Indonesia’s defiance of World Trade Organization (WTO) norms with its nickel export ban may inspire other battery metal-exporting countries to adopt similar strategies, using raw ore export restrictions to attract investments in processing, battery production, and EV manufacturing. KSG assesses that mining, battery, and EV companies will likely need to adapt to increasing resource nationalism by relocating value-added industries to primary producers. Zimbabwe has banned raw lithium exports, Bolivia has nationalized lithium production to ensure domestic value-added refinement and battery production, and Chile is offering preferentially priced lithium in exchange for investments in cathode production. However, Indonesia’s success in attracting value-added investments through its export ban has hinged on significant Chinese investments and the establishment of a business-friendly environment. To replicate Indonesia’s success, other countries will likely need to secure substantial foreign investment and develop reliable, business-oriented institutional frameworks.
Philippine supply
KSG assesses that the Philippines holds the greatest potential to diversify global nickel production away from Indonesia and China. However, the Philippines faces challenges in competing with the cost-efficiency of Chinese projects in Indonesia. Indonesian nickel production benefits from access to low-cost energy, affordable labour, economies of scale, and efficient HPAL facilities, likely putting the Philippines at a competitive disadvantage. Philippine Trade Undersecretary Ceferino Rodolfo stated that Chinese investors have already shown interest in Philippine nickel. KSG therefore assesses that the window of opportunity to establish non-Chinese nickel supply chains in the Philippines may begin to close if Manila receives insufficient Western investment, potentially opening the door to increased Chinese involvement. KSG assesses it as a lucrative investment for Western entities.