Analysis: Indonesia’s rare earth paradox inside downstreaming

By Dominikus

Indonesia is already generating rare earth elements through its mineral downstreaming system, even without a dedicated rare earth mining industry. In a recent presentation, Julian Ambassadur Shiddiq of the Mineral Industry Agency (Badan Industri Mineral/BIM) showed that rare earth elements are structurally embedded in residuals from processing and refining (sisa hasil proses pengolahan dan pemurnian, or SHPP) produced by nickel, bauxite, and tin operations.

As of October 2025, Indonesia’s nickel downstreaming sector had generated 248.32 million tons of SHPP from 46 nickel smelters, representing around 60% of installed capacity and supported by 403 mining licences. Laboratory characterisation indicates nickel laterite SHPP contains 120–150 ppm total rare earth elements, dominated by scandium (around 52 ppm), alongside praseodymium (60 ppm), neodymium (18 ppm), and dysprosium (8 ppm).

In bauxite processing, Indonesia has generated 18.80 million tons of red mud SHPP from five alumina refineries and 79 mining licences. Samples from West Kalimantan show around 60 ppm scandium, 171 ppm neodymium, and 150 ppm praseodymium. Assuming an 80% recovery rate, potential scandium output alone is estimated at 48 tons per year—material by global standards.

Tin processing has produced 292,551 tons of slag and 101,418 tons of SHPP from 25 smelters and 199 licences. These residues contain monazite and xenotime enriched in neodymium, praseodymium, dysprosium, terbium, and yttrium, but are also associated with thorium and uranium, introducing regulatory and environmental complexity.

Geological data presented by Muhammad Wafid of the Geological Agency confirm Indonesia’s broader endowment: 136.2 million tons of rare earth ore resources containing about 118,000 tons of rare earth metals. Yet of 28 identified mineralisation locations, only nine—around 30%—have undergone early-stage exploration.

The downstreaming paradox, therefore, is not about resource availability. It lies in why rare earth-bearing streams already generated at scale remain excluded from feasibility studies, industrial planning, and operational regulation—allowing production to expand faster than value capture.

Rare earths as an existing output of downstreaming

Indonesia’s downstreaming policies for nickel, bauxite, and tin have created continuous by-product streams that already function as an industrial rare earth supply base. SHPP is not incidental waste; it is a structural output of large-scale processing.

In nickel operations, rare earth recovery—particularly scandium—is linked to by-products of HPAL nickel-cobalt processing rather than primary mining. With more than 248 million tons of SHPP already generated, rare earth presence in nickel residues is continuous and measurable.

Bauxite red mud shows a similar pattern. At current production levels, potential scandium recovery from red mud alone rivals output from several primary scandium projects globally. Tin residues add diversification, though radioactive associations complicate utilisation.

SHPP versus conventional feasibility logic

The core gap in Indonesia’s rare earth development is not geological, but analytical. Conventional feasibility studies are designed for primary rare earth mining: high-grade ore, standalone plants, and direct product revenues. SHPP-based rare earths do not fit this model.

Their grades are low, but volumes are massive, continuous, and generated within existing operations. Recovery costs are incremental, not greenfield. Yet current feasibility frameworks largely exclude SHPP from base-case economics, resulting in downstreaming projects being approved without recognising embedded rare earth value.

Geological abundance does not equal value capture

Indonesia’s rare earth potential spans laterites, granitic systems, ultramafic rocks, and tin-related placers across Sulawesi, Kalimantan, Sumatra, Bangka Belitung, and eastern Indonesia. However, geological recognition alone does not translate into economic outcomes.

A dual structure has emerged: long-term geological resources remain underexplored, while immediate industrial by-product streams expand without integration. Rare earths are treated as strategic on paper, but economically invisible in practice.

Policy recognition without operational integration

Rare earth elements are formally classified as critical and strategic minerals. Government Regulation No. 39 of 2025 mandates further rules on exploitation and utilisation. Yet technical guidance for recovering rare earths from SHPP remains limited.

Environmental regulation adds friction. Certain SHPP materials, including red mud, are classified as hazardous waste under Government Regulation No. 22 of 2021, constraining reuse despite economic potential. At the same time, Government Regulation No. 26 of 2023 permits the export of marine sediment containing rare earths, underscoring policy inconsistency.

The result is ambiguity: rare earths are strategically acknowledged but operationally constrained.

Decision lens: shifting from potential to reality

Indonesia’s rare earth challenge is often framed as a need for new mining projects. Evidence from SHPP suggests otherwise. The key decision is whether existing rare earth outputs are integrated into feasibility logic, regulation, and industrial planning.

A practical framework rests on five checks: sustained material flow, recoverable element profile, incremental integration cost, regulatory tractability, and downstream demand anchoring. Applied together, these move the debate from abstract resource potential to measurable industrial reality.

Conclusion

Indonesia’s downstreaming system is already generating rare earth-bearing materials at scale through SHPP from nickel, bauxite, and tin processing. Geological data confirm supply security, but availability is not the binding constraint.

The downstreaming paradox lies in the gap between production reality and value capture. Rare earths already exist within Indonesia’s industrial system. Whether their value is realised depends on how feasibility frameworks, regulatory treatment, and industrial planning evolve to recognise what downstreaming already produces.

Editing by Reiner Simanjuntak