Indonesia’s nickel industry in 2025: From expansion to stabilization

By Pandu Setiabudi

After years of acting as a key driver of Indonesia’s mineral downstreaming agenda, the country’s nickel industry entered a new phase in 2025. While Indonesia remains the world’s largest nickel producer—accounting for an estimated 65% of global supply—the industry is now confronting a different set of challenges. Global oversupply, pressure on nickel prices and downstream products, and shifts in government policy are gradually pushing the sector away from aggressive expansion toward a phase of stabilization.

Downstream expansion out of step with demand

The government’s ban on nickel ore exports, which took effect in January 2020, triggered rapid growth in Indonesia’s domestic smelting industry. Pyrometallurgical smelters—particularly those using Rotary Kiln Electric Furnace (RKEF) technology—expanded quickly to produce ferronickel (FeNi) and nickel pig iron (NPI) for the global stainless steel market. In the next phase, hydrometallurgical processing through High Pressure Acid Leach (HPAL) technology began to develop, producing Mixed Hydroxide Precipitate (MHP) as a key raw material for electric vehicle (EV) batteries.

By 2025, Indonesia’s total nickel smelting capacity is estimated to have reached around 2.5 million tons of nickel per year, with more than 50 smelters in operation. The majority of these facilities are RKEF-based, while only a small portion utilize HPAL technology. While this rapid expansion has cemented Indonesia’s position as a dominant player in the global nickel supply chain, it has also made the country one of the largest contributors to global oversupply.

Capacity growth, however, has not been matched by demand. Throughout 2025, the global nickel market grappled with persistent surpluses that weighed on prices, particularly for intermediate products such as NPI, FeNi, nickel matte, and MHP—most of which are produced in Indonesia. The situation highlights the limitations of a volume-driven downstreaming strategy, especially when market absorption is constrained.

“We are indeed producing very large volumes at the moment. But challenges also come from global economic conditions due to conflicts between countries, such as geopolitical tensions between China and the United States, including trade and tariff wars. These factors clearly affect demand for nickel products,” said Arif Perdanakusumah, Chairman of the Indonesian Nickel Industry Forum (FINI).

Annual RKAB and upstream uncertainty

Amid oversupply pressures, the government has begun recalibrating policies on the upstream side. In 2025, it decided that mining Work Plans and Budget Expenditures (RKAB) would revert to an annual issuance starting in 2026, after previously being approved for three-year periods. The move is intended to make mining output more responsive to market conditions and to prevent excessive supply growth.

According to the Nickel Industry Decarbonization Roadmap published by the National Development Planning Agency (Bappenas) in 2025, national nickel ore RKAB volumes surged from around 66 million tons in 2021 to nearly 299 million tons in 2025. Meanwhile, the Indonesian Nickel Miners Association (APNI) estimates that the approved RKAB quota for 2025 could reach as high as 379 million tons. Actual production, however, has increasingly lagged behind these quotas, underscoring a widening gap between planned output and market demand.

For 2026, APNI expects RKAB volumes to decline significantly to around 250 million tons of nickel ore. While the figure has yet to be finalized, the potential reduction has raised concerns among industry players with large sunk investments.

“Next year, it’s said to be 250 million tons. That’s the government’s plan, but it’s still just a plan. I don’t know what the realization will be,” said Meidy Katrin Lengkey, Secretary General of APNI.

For smelters as off-takers, the shift back to annual RKAB issuance could create mismatches between ore supply and installed smelting capacity. FINI has warned that the policy could introduce new risks to raw material supply security.

“With the change from three-year to one-year RKAB, there are concerns among processing industry players regarding future raw material supply certainty. Nickel industry capacity keeps increasing, but if RKAB quotas are cut, production will clearly be affected,” Arif said.

In a scenario where domestic supply tightens, Arif expects nickel ore imports—particularly from the Philippines—to rise again.

“In 2024, we imported around 12 million tons of nickel ore from the Philippines. In 2025, it’s estimated to be around 15 million tons,” he said.

Moratorium on intermediate smelters: A policy shift

On the downstream side, the government has taken a decisive step by imposing a moratorium on new licenses for intermediate nickel smelters under Government Regulation No. 28 of 2025. The regulation halts the issuance of new permits for smelters producing FeNi, NPI, nickel matte, and MHP.

The move signals a policy shift from capacity expansion toward deeper value addition. By curbing new intermediate smelting capacity, the government aims to prevent further oversupply while steering investment into higher-value downstream processing.

“The government’s objective is good for the future of the industry, to ensure that incoming investments produce more downstream and value-added nickel products,” Arif said.

Smelter projects that had already secured permits and entered the construction phase prior to the regulation are still allowed to proceed.

“When the regulation was issued, there were companies already in the construction stage. They had met the basic requirements and committed to completing construction within three years, and the government granted them discretion,” Arif said.

Uncertainty remains, however, for projects that have obtained permits but have yet to begin construction.

“For those that haven’t started construction but already have permits, some cases may be handled on a case-by-case basis by the government,” he added.

HPAL and battery ecosystem ambitions

Despite these constraints, the government continues to position EV batteries as the strategic endpoint of nickel downstreaming. In June 2025, it broke ground on an integrated EV battery ecosystem project involving PT Aneka Tambang Tbk (ANTAM), Indonesia Battery Corporation (IBC), and Contemporary Amperex Technology Co. Limited (CATL), with a total investment of around US$5.9 billion.

The project reinforces Indonesia’s ambition to become a producer of nickel-based batteries, particularly Nickel Manganese Cobalt (NMC) batteries. Under this strategy, HPAL smelters are expected to continue expanding as suppliers of battery-grade raw materials.

“Additional RKEF capacity going forward won’t be very large. But for HPAL, the pipeline is still substantial and capacity will continue to increase,” Arif said.

However, HPAL development faces significant economic challenges, particularly the limited availability of sulfuric acid—the second-largest cost component in the HPAL process. PT Merdeka Battery Metals Tbk (IDX: MBMA) President Director Teddy Oetomo said national sulfuric acid production capacity stands at only around 3 million tons per year, insufficient even for existing HPAL operations. Rising prices—from around US$40 to US$100 per ton—have further eroded project competitiveness.

“Indonesia’s sulfuric acid production today is only around 3 million tons, and even that is not enough for our own HPAL plant. If we don’t have our own sulfuric acid plant, we’re finished. Our downstream industry will not be competitive,” Teddy said.

Market contradiction: LFP battery dominance

Despite the government’s strong push for NMC batteries, Indonesia’s domestic EV market remains dominated by Lithium Iron Phosphate (LFP) batteries. Climateworks Centre data show that of roughly 125,000 EVs currently on the road, fewer than 20,000 use NMC batteries. The dominance of LFP is largely driven by cost, with prices around 30% lower than NMC.

Climateworks argues that NMC battery development in Indonesia requires targeted industrial policies, including differentiated incentives between NMC- and LFP-based EVs.

The government, through the Investment Coordinating Board (BKPM), has previously indicated it may tighten permits for LFP-based EVs to promote NMC adoption. Deputy Minister for Investment Promotion Nurul Ichwan said such measures are needed to reinforce nickel downstreaming.

“That’s the logic, because we want to further downstream nickel. We need to fix the policy so that we can better encourage the presence of EVs using NMC,” Nurul said.

Outlook 2026: Consolidation and industry selection

Entering 2026, Indonesia’s nickel industry is expected to move deeper into a stabilization phase following years of rapid expansion. Persistent global oversupply, tighter ore supply through annual RKAB issuance, and the moratorium on intermediate smelters are likely to limit new capacity growth and shift focus toward optimizing existing assets.

Producers with secure access to raw materials and stronger integration into higher value-added segments are expected to be more resilient, as they are less exposed to import risks and better aligned with government policy.

At the same time, Indonesia’s ambition to move further into the EV battery value chain remains intact, though realization will depend heavily on project economics and alignment with market demand. A continued mismatch between policy direction and market preferences could pose challenges if left unaddressed.

Going forward, the central question for Indonesia’s nickel industry is no longer how fast capacity can grow, but how effectively the industry can adapt to global market realities and ensure that downstreaming remains economically relevant.

Editing by Reiner Simanjuntak