Indonesia Faces a Nickel Industry Crisis Due to China

Indonesia’s nickel industry is facing a significant crisis due to China’s overwhelming influence and control. Initially, the relationship between Indonesia and China seemed mutually beneficial. Indonesia supplied the raw materials and labor, while China provided the necessary technology and a vast market for nickel, crucial for electric vehicle (EV) batteries. This partnership quickly propelled Indonesia to dominate 55% of the world’s nickel market.

However, the reality of this dominance is proving problematic. The aggressive cost structure that facilitated this growth has led to an overreliance on Chinese investment and market demand. China’s involvement is not merely driven by profit but by a strategic aim to secure a steady, low-cost supply of nickel for its massive manufacturing sector, which leads to global EV production.

This single-customer dependency is detrimental to Indonesia. Over the past 18 months, the flood of nickel from Indonesia has driven down global nickel prices by 47% to $15,934 per ton. While this price drop benefits Chinese EV manufacturers, it spells disaster for rival miners worldwide and Indonesian miners who find their profits slashed.

Adding to the economic strain is the strategic fallout. The U.S. Inflation Reduction Act (IRA) offers significant tax incentives for critical metal suppliers, but Indonesia’s close ties with China may disqualify it from these benefits. This creates an opening for other nickel-producing countries like Canada and Australia, which have seen mine closures due to the fierce Indonesian-Chinese competition.

A more worrying aspect is the geopolitical risk. If Indonesia continues down this path, it risks becoming overly dependent on China, isolating itself from other major markets like the U.S. and Europe, which are keen to secure non-Chinese sources for their EV industries. Europe is already grappling with an influx of Chinese vehicles, adding to the urgency for diversified supply chains.