Summary of Key Points
In 2026, Indonesia suddenly tightened its nickel mining policies, implementing a 30% reduction in quotas, a 132% increase in the benchmark price, and higher taxes. This change disrupted the previous win-win arrangement in the Indonesian nickel industry, where Chinese companies invested and Indonesia sold resources. Essentially, this marks an upgrade of Indonesia's resource strategy: from attracting foreign investment to build industries to seeking greater profits and pricing power once the industries matured. Chinese companies with significant investments in Indonesia (totaling over $14 billion) are bearing the brunt of these changes, facing increased costs in the stainless steel and new energy sectors. China is responding by adjusting its technological approach (increasing the use of lithium-ion batteries with ferrophosphate as a cathode material) and seeking alternative resources (such as the Philippines). This situation reflects a rising trend of resource nationalism, where resource-rich countries are no longer content with just selling raw materials but aim to become the "rule-makers."
Indonesia's New Policies
Indonesia's measures are quite drastic:
- Quota Cuts: The nickel production quota for 2026 has been reduced from 379 million tons in 2025 to 250-270 million tons, a 30% decrease. Additionally, the approval process for quotas has shifted from every three years to annually, increasing policy uncertainty.
- Price Hikes: The benchmark price adjustment factor has been increased from 17% to 30%, and associated metals like cobalt and iron are now included in the pricing. For example, the benchmark price for wet-process nickel ore with a 1.2% grade has risen from $17.33 per wet ton to $40.13 per wet ton, a 132% increase.
- Tax Increases: The royalty rates have been increased by 1-2 percentage points, and the nickel price classification system has been expanded from five to six tiers, resulting in higher revenue for the government.
The direct consequences are:
- A gap of 80 million tons between Indonesia's domestic ore demand (340-350 million tons) and its allocated quotas (250-270 million tons), leading to a decrease in capacity utilization from 84% to 76%.
- Ore prices far exceed market transaction levels, causing a sharp rise in smelting costs.
This Is Not a "Turnoff," but a New Phase of Indonesia's Resource Strategy
Many believe Indonesia has changed its approach, but it reflects a shift in its development logic:
- Early Investment Appeal: In 2014, Indonesia banned the export of raw ore to encourage companies to build smelters and process the ore into higher-value products. Chinese companies stayed and helped transform Indonesia from a major ore exporter to the world's largest nickel smelting hub (producing more than half of global nickel output, with exports growing from $5 billion to $30 billion).
- Seeking Higher Returns: Now that the industry is mature, Indonesia realizes it holds a key position in the new energy sector, as nickel is a critical material for batteries. The Jokowi administration wants to maximize profits by promoting local processing of battery materials and enhancing fiscal revenue while maintaining control over prices.
This is a common pattern for resource-rich countries: they offer incentives to attract investment, then adjust the rules once the foreign capital is invested (creating sunk costs) to share the profits. This has happened with oil, lithium, and cobalt mines.
The Biggest Pressure on Chinese Companies
China, as the world's largest nickel consumer (with 90% of its nickel imports coming from Indonesia), is most affected:
- Stainless Steel Industry: China produces nearly 40 million tons of stainless steel, relying heavily on Indonesian nickel ore. Rising ore prices lead to increased smelting costs, which in turn affect the price of stainless steel products.
- New Energy Industry: Chinese companies have invested billions in wet-process smelting projects in Indonesia to process laterite nickel ore into battery materials. These projects have long construction periods and high upfront investments, making it difficult to withdraw. The new policies disrupt their profit models, requiring them to reassess their investment viability.
Companies like Tsinghua Unigroup, Huayou Cobalt, and CATL's BAMP Recycling have significant assets in Indonesia and must negotiate with the government.
China's Responses
China is not passive in the face of these changes:
- Technological Adjustment: Lithium-ion batteries with ferrophosphate as a cathode material are becoming more popular (accounting for 81.5% of sales in April 2026). These batteries require less nickel and have lower costs, representing a shift towards reduced nickel dependence and enhanced supply chain security.
- Alternative Resource Seeking: Nickel exports from the Philippines have increased significantly (70% growth in January-April 2026), but they can only cover part of the gap due to limited infrastructure and heavy rainy seasons.
- Active Communication: The Indonesian-Chinese Chamber of Commerce, along with companies like Tsinghua Unigroup and Huayou, has written to the president, expressing concerns about the impact of the policies on business operations and calling for stable and transparent policies.
Global Implications
The Indonesian nickel policy is not an isolated case. Other countries, such as Chile (adjusting lithium policies), the Democratic Republic of the Congo (revising cobalt agreements), and Zimbabwe (banning lithium exports), are also seeking greater benefits from their resources. This indicates a shift in the global supply chain dynamics:
- Changing Global Supply Chains: Previously, manufacturing countries (like China) controlled technology and markets, while resource-rich countries sold raw materials. Now, resource countries are becoming "rule-makers" to obtain a larger share of profits.
- Chinese Companies Need to Adapt: They must move beyond relying on low-cost resources and develop diversified supply chains, enhance their cross-border management capabilities, and innovate to reduce dependence on key minerals.
Indonesia is just the beginning. Similar situations may arise with other minerals like lithium, copper, and rare earths. Chinese companies need to prepare in advance to adapt to this new era where resource-rich countries hold more power.
In summary, Indonesia's new nickel policies reflect the inevitable outcome of maturing resource economies. Chinese companies must shift from focusing on profit margins from resource sales to competing through technology and resilience to maintain their position in the global supply chains.