By Dr Alloysius Joko Purwanto, Energy Economist, and Dr Han Phoumin, Senior Energy Economist: The signing of a memorandum of understanding in late May 2025 between the Indonesian Investment Authority (INA), Danantara Indonesia, and French mining and metallurgy company Eramet marks a significant step by the Government of Indonesia to diversify partnerships in its nickel sector. The agreement, which aims to create a strategic investment platform covering the entire nickel value chain – from extraction to industrial processing – signals a corrective shift in policy.

This development comes just one month after Republic of Korea’s LG Energy Solution (LGES) withdrew from a US$8.45 billion electric vehicle (EV) battery project in Indonesia, and was replaced by China’s Huayou. It also reflects Indonesia’s readiness to raise environmental and social standards in its mining industry. In mid-2024, Eramet and Germany’s BASF exited a US$2.6 billion nickel-and-cobalt refinery project in Halmahera, citing environmental and social concerns.

Given the current geopolitical climate, Indonesia must further diversify its partnerships to strengthen the resilience of its nickel downstreaming strategy, improve the sustainability of its nickel industry, and boost the global competitiveness of its nickel-based commodities. At least two aspects of partnership diversification are critical: investment and market development.

1. Investment Concentration and Supply Chain Risks

Since 2016, foreign direct investment (FDI) in Indonesia’s nickel processing and refining sector has focused heavily on Sulawesi and Halmahera. These regions have become hubs for the country’s nickel downstreaming industry, supported largely by joint ventures dominated by Chinese companies. Chinese ownership in major industrial parks includes at least 49.7% in Morowali, Central Sulawesi (IMIP); 100% in Weda Bay, Halmahera (IWIP); and 68% in Konawe, South Sulawesi (IKIP).

The result has been a near-total shift of Indonesia’s nickel ore production toward domestic processing and refining. Since 2020, practically all mined nickel ore has been converted into higher-value commodities such as ferronickel, nickel pig iron (NPI), mixed hydroxide precipitate (MHP), and nickel sulphate – crucial inputs for steelmaking and EV battery production. MHP, produced through high-pressure acid leaching (HPAL), is used to manufacture nickel sulphate, which is a key precursor for battery cathodes.

However, the dominance of a single country in the supply chain may deter other investors due to perceived market imbalance. Concerns about unequal treatment and pricing practices within a supply chain dominated by established players from one country are likely contributing to the reluctance or withdrawal of potential new investors.

2. Market Concentration in Nickel-Based Exports

Indonesia began exporting MHP in 2021. According to UN Comtrade data, the export value rose sharply – from USUS$311 million in 2021 to USUS$2.14 billion in 2022, and USUS$2.66 billion in 2023. While unit prices declined between 2022 and 2023 due to global oversupply, export volumes continued to rise. Indonesia’s global market share in MHP exports jumped from 14.8% in 2021 to 77.3% in 2023.

However, the market remains heavily concentrated. Nearly all of Indonesia’s MHP exports went to China – 100% in 2021,91.8% in 2022, and 99.7% in 2023. A similar pattern is seen with nickel sulphate exports, which began in 2023 and amounted to USUS$234 million – 19% of the global total – making Indonesia the second-largest exporter after Republic of Korea. Yet again, 100% of this output was exported to China.

This dependence on a single offtaker country poses significant vulnerability to geopolitical shocks, techno-political policy changes, and other external disruptions.

Four Key Measures for Diversification

To advance a more diversified and resilient downstream nickel industry, Indonesia must take at least the following four steps:

1. Guarantee Fair and Competitive Market Conditions
   The government must assure prospective investors of fair treatment and equal opportunity across the supply chain. This includes transparent rules on supply and pricing of raw and processed materials, as well as consistent, investor-friendly regulatory frameworks. Independent monitoring mechanisms should be introduced to ensure a level playing field and avoid monopolistic control by incumbent players.
2. Adopt Higher Environmental and Social Standards
   Indonesia should commit to stronger environmental, social, and safety standards in its mining and processing sectors. While such standards may increase production costs, they help mitigate externalities and enhance the long-term competitiveness of nickel-based products. Adherence to high standards will also expand access to environmentally conscious export markets.
3. Strengthen Domestic Capabilities
   It is crucial to build the technical and institutional capacity of Indonesian firms – both national and local – so they can play key roles in the nickel value chain. This includes mastery of processing and refining technologies, as well as digital tools for supply chain management and environmental impact tracking throughout the lifecycle of nickel-based products, especially EV batteries.
4. Build a Strong Domestic Market for Nickel-Based Products
   Indonesia’s ambition to become a major EV manufacturing hub must be supported by a robust domestic market. Strengthening domestic demand for EVs will provide a stable foundation for the nickel industry, enabling the country to determine its own technological roadmap and reduce reliance on foreign buyers. Domestic market development also ensures the long-term viability and strategic autonomy of the industry.

Conclusion

Indonesia’s nickel downstreaming strategy is at a critical juncture. The recent agreement with Eramet offers an opportunity to recalibrate the country’s approach toward more balanced and sustainable growth. By diversifying both investment sources and export destinations – while upholding environmental standards and empowering local industry – Indonesia can reinforce its position as a global leader in the green energy transition.

This opinion piece was written by Dr Alloysius Joko Purwanto, Energy Economist, and Dr Han Phoumin, Senior Energy Economist, ERIA, and has been published in The Jakarta Post. Click here to subscribe to the monthly newsletter.

Disclaimer: The views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the Economic Research Institute for ASEAN and East Asia.