Indonesia’s nickel industry has exploded onto the global stage, fueled by the rapid adoption of electric vehicles (EVs). As the world shifts to greener technologies, nickel—a key ingredient in many EV batteries—has become a highly sought-after commodity. In 2023, Indonesia emerged as a leader in nickel production, contributing a staggering 40.2% of the world’s supply. This surge in nickel output has ignited hopes that Indonesia could use its vast reserves as a stepping stone toward establishing a domestic EV industry.
However, this nickel boom has not been without controversy. Allegations of forced labor, environmental degradation, and pollution have raised concerns about the industry’s sustainability. At the same time, the complex web of geopolitics—particularly the rivalry between China and the U.S.—is influencing the future of Indonesia’s nickel sector. While China has played a pivotal role in the development of the industry, the U.S. is working to curb China’s dominance through policies like the Inflation Reduction Act (IRA). Furthermore, advancements in battery technology, such as the adoption of cheaper lithium iron phosphate (LFP) batteries that don’t require nickel, pose potential challenges to Indonesia’s long-term aspirations.
Yet, Indonesia’s government remains optimistic about the future, with officials outlining plans to transform the nation into a global battery-making powerhouse. Septian Hario Seto, Deputy of Investment and Mining Coordination to the Coordinating Minister for Maritime Affairs and Investments, highlighted these ambitions in a recent interview. He spoke extensively about Indonesia’s evolving role in the global EV supply chain, as well as the country’s strategies for overcoming both technical and geopolitical challenges.
Indonesia’s rise as a major nickel producer is closely tied to the global demand for EVs. Nickel is essential in the production of lithium-ion batteries, which power most electric vehicles today. In particular, nickel-rich batteries offer higher energy density, allowing EVs to travel longer distances on a single charge. As the market for EVs expands, so too does the demand for nickel.
In 2023, Indonesia accounted for over 40% of the global nickel supply, a figure that underscores the country’s dominance in the market. The abundance of nickel deposits, coupled with aggressive government policies, has enabled the nation to capture a significant share of the global market. These policies include bans on raw nickel exports, which aim to force foreign companies to invest in domestic processing facilities, thereby boosting the value-added segment of the industry.
Despite these successes, the nickel boom has drawn criticism from various quarters. In September, the U.S. Department of Labor reported the use of forced labor in the Indonesian nickel industry. These allegations, coupled with environmental concerns such as deforestation, pollution, and damage to marine ecosystems, have tarnished the industry’s image. The Indonesian government has denied the forced labor allegations, arguing that such claims are inconsistent with the operational scale and labor practices within the sector.
Geopolitics plays a central role in Indonesia’s nickel industry. Chinese companies have been instrumental in the development of the sector, providing both investment and technical expertise. Chinese firms have built much of the nickel processing infrastructure in Indonesia, particularly through High-Pressure Acid Leaching (HPAL) plants, which extract nickel from low-grade ore. This partnership has allowed Indonesia to climb the value chain, moving from simply mining nickel ore to producing more refined materials, such as mixed hydroxide precipitate (MHP), used in battery manufacturing.
However, the growing influence of China in Indonesia’s nickel industry has caught the attention of the U.S. As part of its broader strategy to reduce dependence on Chinese supply chains for green materials, the U.S. introduced the Inflation Reduction Act (IRA) in 2022. The IRA provides subsidies for EVs but places restrictions on vehicles that use components or materials sourced from entities more than 25% owned by “foreign entities of concern,” a term widely seen as targeting Chinese companies. This policy shift has significant implications for Indonesia, as Chinese firms dominate the country’s nickel sector.
In response, Indonesia is seeking to diversify its partnerships. In 2023, a significant development occurred when Vale, a Brazilian mining giant, signed a deal to open a nickel processing plant in Indonesia in partnership with China’s Huayou Cobalt and the American car manufacturer Ford. This collaboration, which includes partners from multiple countries, reflects a growing trend in the industry: non-Chinese companies are increasingly entering joint ventures with Chinese technology providers to navigate the complexities of nickel processing, particularly HPAL technology.
As Indonesia positions itself as a critical player in the EV supply chain, the rise of alternative battery technologies could pose a challenge. In recent years, lithium iron phosphate (LFP) batteries have gained popularity, especially in China. LFP batteries do not contain nickel or cobalt, making them a cheaper and more environmentally friendly option. While they offer lower energy density compared to nickel-rich batteries, improvements in LFP technology have made them more competitive, especially for shorter-range vehicles.
Indonesia is not ignoring this trend. According to Seto, the country is already developing an LFP battery factory, alongside efforts to produce cobalt and manganese, which are also key ingredients in battery manufacturing. Indonesia is also investing in copper and aluminum production, further solidifying its position as a hub for the EV industry.
In September 2023, Indonesia commissioned its first pCAM (precursor material for battery cathodes) factory and built two lithium refineries. While Indonesia does not have domestic lithium mines, it imports lithium from Australia, Africa, and Latin America, processing the material domestically. Seto emphasized that the country is also working on anode production, which is crucial for both LFP and nickel-based batteries. Indonesia now boasts the largest capacity for battery materials outside of China.
One of the most pressing issues facing Indonesia’s nickel industry is the allegation of forced labor. The U.S. Department of Labor’s report in September 2023 raised concerns about the working conditions in the nickel sector, but the Indonesian government has pushed back strongly. Seto expressed surprise at the announcement, stating that the U.S. did not consult Indonesia on the matter. He argued that the scale of operations in the nickel industry, which involves thousands of workers, makes forced labor impractical.
Indonesia’s nickel industry has also been scrutinized for its environmental practices. Mining activities have caused significant damage to ecosystems, particularly in coastal and forested areas. To address these concerns, Indonesia launched the Simbara System, a traceability mechanism designed to monitor the production and sale of nickel. The system ensures that every ton of nickel ore can be tracked from production to sale, allowing the government to block shipments from companies that violate environmental regulations.
Additionally, Indonesia is encouraging companies to obtain independent international ESG (environmental, social, and governance) certifications. Major players like Weda Bay Nickel, Vale Indonesia, and Harita are participating in initiatives to improve their ESG performance, with buyers conducting their own due diligence to ensure compliance with international standards.
Despite these efforts, the industry faces persistent challenges. A tragic accident in late 2022, in which several workers died at a nickel smelter, highlighted concerns about health and safety practices. In response, Indonesia took the rare step of prosecuting the managers responsible under criminal law, rather than labor law, signaling its commitment to enforcing stricter safety standards.
A key challenge for Indonesia as it seeks to build a comprehensive EV supply chain is the shortage of skilled labor, particularly in metallurgy and material sciences. To address this gap, Indonesia has opened new faculties specializing in these fields and sent graduates to China to obtain master’s degrees. In September 2023, Indonesia inaugurated its first HPAL hydrometallurgy lab, which was funded by a Chinese company. The lab, valued at $30-35 million, is the largest of its kind in the world, even surpassing China’s own facilities. Seto expressed confidence that Indonesia would introduce its own patents for nickel processing technology within the next two to three years.
Indonesia’s education and training initiatives aim to ensure that the country can sustain its position as a leader in nickel processing and battery manufacturing. However, the road ahead will require significant investment in midstream and downstream segments of the industry, such as battery cell and battery pack production.
Indonesia’s nickel industry is at a crossroads. On the one hand, the country’s vast reserves and strategic investments in processing and battery production position it as a critical player in the global EV supply chain. On the other hand, allegations of labor abuses, environmental degradation, and geopolitical tensions could undermine its ambitions.
As technological advancements, particularly in battery chemistry, continue to evolve, Indonesia will need to remain agile in adapting to new market realities. The government’s efforts to diversify partnerships, enhance traceability, and improve educational infrastructure will be crucial in determining whether Indonesia can not only maintain its dominance in nickel production but also transform into a global leader in the EV industry.
