Chinese nickel investors brace for headwinds as Indonesia weighs smelter freeze

Indonesia is weighing a moratorium on new smelters that produce semi-finished nickel products. These include nickel pig iron and nickel matte, which together account for about 50 to 60 per cent of Indonesia’s nickel output. The proposal matters because a global supply glut has pushed nickel prices lower since 2023.

The restriction would target new construction rather than automatically shutting existing plants. Nickel pig iron mainly supplies stainless-steel production, while nickel matte is used in electric-vehicle batteries. Indonesia’s energy and mineral resources minister is preparing recommendations on which parts of this sector should face limits.

The policy is also meant to strengthen Indonesia’s industrial structure and protect local industries. Planned conventional smelters could be delayed or cancelled, especially where profit margins are already narrow. The government has not yet announced the final restrictions. President Prabowo Subianto is expected to decide after receiving the minister’s team’s recommendation.

A nickel smelter is a processing plant that turns mined nickel ore into a more useful material. Mining extracts ore containing nickel mixed with rock and other minerals. Smelting uses heat and industrial treatment to separate valuable metal-bearing material from much of the waste. The result can be an intermediate product rather than pure nickel.

For example, Indonesia produces nickel pig iron and nickel matte. Nickel pig iron is mainly used to make stainless steel. Nickel matte is used in electric-vehicle batteries. The exact processing route depends on the ore and the intended product, but both products make mined nickel easier for manufacturers to use.

Smelters therefore connect mines with industries that need nickel. Indonesia’s proposed moratorium concerns new plants making these semi-finished products. The article does not describe each technical processing stage, but it shows why smelting capacity matters: it determines how much nickel Indonesia can process domestically and supply to major manufacturing markets.

Indonesia is a dominant force in nickel. A study cited in the article found that it held more than half of the global nickel market in 2023. That position gives Jakarta major influence over mining, processing capacity, and the supply available to industries such as stainless steel and electric-vehicle batteries.

The country’s output is also heavily concentrated in semi-finished products. Nickel pig iron and nickel matte together account for about 50 to 60 per cent of total Indonesian nickel output. Nickel pig iron mainly goes into stainless steel, while nickel matte is used in electric-vehicle batteries. These figures show why any policy affecting new semi-finished smelters could have broad effects.

Indonesia’s scale grew after its raw nickel ore export ban encouraged domestic processing. Investment, especially from Chinese companies, helped expand smelting capacity. However, Goldman Sachs said that this growth contributed to oversupply and weighed on prices since 2023. The proposed restrictions seek to respond to that imbalance.

Chinese investors would be especially exposed because they occupy a major position in Indonesia’s nickel refining industry. An estimate from the Centre for Advanced Defense Studies puts Chinese investment at about 75 per cent of that industry. Chinese companies and capital also play a major role in Indonesia’s mining and smelting sectors.

A moratorium would directly affect Chinese-backed projects that have not yet been built. Companies planning conventional smelter expansions could face delays or cancellation, particularly when their profit margins are already narrow. Existing investors could also be pushed to improve current facilities or shift toward higher-value products rather than add similar capacity.

The risk extends beyond individual projects. Siwage Dharma Negara identified regulatory uncertainty as a larger concern if investment conditions change frequently. Zhao Xijun said Chinese enterprises could invest elsewhere, from Africa to Latin America, if Indonesia became difficult. That could reduce future Indonesian development, even though the country’s nickel deposits would remain.

A moratorium would mainly affect future projects. Chinese-invested companies planning conventional smelting expansions could face delays or cancellation, especially where profit margins are already thin. Existing companies would not necessarily close, but investors could prioritize improving current facilities and producing higher-value materials.

The key mechanism is a limit on additional processing capacity. Indonesia’s rapid expansion helped create a global nickel supply glut, which has weighed on prices since 2023. Restricting new semi-finished smelters could slow further growth and help Jakarta address overproduction. However, existing mines and plants would continue operating unless separate rules were introduced.

The article does not state that a moratorium would immediately raise prices or reduce current supply. Its effects would depend on the final scope and timing. Regulatory uncertainty could itself make investors postpone expansion or leave Indonesia. Chinese companies might redirect capital elsewhere, while Indonesia could lose development if it lacks the technology and equipment to run projects independently.

Indonesia’s ban on exporting raw nickel ore changed the incentive for companies operating in the country. Instead of sending unprocessed ore abroad, producers had to develop domestic mining and processing capacity. The policy helped move more activity into Indonesia’s own industrial system.

The ban coincided with strong global demand for products such as electric-vehicle batteries. That demand encouraged investment in smelters and other processing facilities. Chinese investment supported the expansion, and Indonesia’s mining and production grew as companies built capacity to turn local ore into more valuable products.

The result was a much larger domestic nickel industry. Indonesia held more than half of the global nickel market in 2023, according to the article. But the same expansion later contributed to oversupply and weaker prices. Jakarta is now considering restrictions on new semi-finished smelters, showing how a policy that stimulated processing has created a new challenge: too much capacity relative to demand.

A supply glut means producers have more material available than buyers want at existing prices. If companies expand mines and smelters faster than demand grows, inventories and unsold output can build. Producers then compete more aggressively for buyers, which puts downward pressure on commodity prices.

Indonesia illustrates this mechanism. Its raw ore export ban encouraged domestic processing, while strong demand for electric-vehicle batteries attracted investment in smelting. Chinese investment supported a rapid expansion of Indonesian processing capacity. That created more nickel products, including nickel pig iron and nickel matte, entering global markets.

Demand did not absorb all the additional supply. Goldman Sachs said the growth contributed to an oversupply that has weighed on nickel prices since 2023. Indonesia is therefore considering a moratorium on some new smelters. Limiting future capacity could slow the increase in supply, although the article does not say how quickly prices would respond or whether they would rise.