Nickel investors on edge as Indonesia tightens the screws on smelters

[JAKARTA] Nickel-rich Indonesia’s industrial ambitions have run into rough currents again, as the government tightens the rules on new smelter developments.

The new regulation threatens to upend multibillion-dollar investments tied to the world’s largest nickel reserves and South-east Asia’s biggest economy.

The stricter rules, aimed at pushing the sector deeper into downstream manufacturing, introduce a fresh layer of uncertainty for companies already navigating a weak price cycle, supply glut and policy environment that analysts say is testing investor patience.

Some of these long-term projects involve sizeable capital commitments and financing structures built around producing intermediate products – precisely the output that is now being restricted under the new rule, Arif Perdanakusumah, chairman of the Indonesian Nickel Industry Forum, told The Business Times.

“These projects have been under development for some time and involve substantial investment,” he stressed.

Without transitional provisions, he warned, companies in the mid-construction phase risk operational setbacks and financial losses. This could, in turn, chill investor appetite in a sector where regulatory certainty is seen as critical.

Intermediate nickel production affected

Under the government directive, companies applying for industrial permits to build refining facilities must declare that they will not produce key intermediate nickel products such as nickel pig iron, ferronickel, nickel matte or mixed hydroxide precipitate, depending on their chosen technology.

New processing or refining facilities can still be developed, but only if the companies commit to producing higher-value downstream products rather than stopping at intermediate output. This is in line with the world’s biggest nickel producer’s aim to move further up the value chain, and draw world-class nickel downstream investment.

But the mid-stream policy shift has dealt a fresh setback to several nickel producers, including many backed by Chinese investors, that began building smelters long before the regulation came into being.

The Indonesian Nickel Industry Forum is urging the government to grant exemptions for projects already in the advanced stages, warning that sudden policy shifts risk undermining investor confidence and disrupting productivity in the downstream sector.

The new rule follows months of speculation that Indonesia, where rapid smelter expansion has reshaped the global nickel market, would impose a moratorium on new projects.

Although the rule was issued in a government regulation in June, concerns surrounding it resurfaced recently. An industry insider said that this could be related to a technical annexe that was released only in October, and specifies the intermediate products that have been restricted. This may have confused some quarters regarding ongoing projects.

Developers are now seeking clarity on whether the restrictions apply to smelters already under construction.

This latest development is unlikely to significantly impact global nickel prices in the near term. “In the short term, the halt won’t move the needle,” noted Chan Ker Liang, corporate analyst at S&P Global Ratings.

“We are in a weak cycle, which naturally dampens investment in the mining sector. That said, regulatory uncertainty has always been a major hurdle for foreign investors in this market.”

After briefly spiking above US$20,000 a tonne early in 2025, nickel prices have stayed subdued at around US$15,000 a tonne, weighed down by tariff pauses, trade tensions and softer demand growth.

Nickel glut to persist

The price slump compounds the woes in an industry already grappling with persistent oversupply.

Indonesia is gearing up for a surge in nickel production, with 147 smelter projects planned across the country, said the Indonesian Nickel Miners Association.

Pyrometallurgical projects dominate, totalling 120 and requiring nearly 585 million tonnes of nickel ore, while 27 hydrometallurgical projects need just over 150 million tonnes of the ore.

The combined demand for 735.2 million tonnes is more than double the government-approved work plan and budget of 364 million tonnes of ore in 2025. It also far exceeds last year’s budget of 319 million tonnes, highlighting the industry’s rapid expansion.

S&P Global Market Intelligence estimates that the nickel market will record a surplus of around 200,000 tonnes this year.

The firm expects the market to normalise only towards the end of the decade, hence limiting the potential for sustained price recovery.

Foreign investments: at a crossroads

Indonesia’s nickel boom over the past decade attracted billions of dollars in investments, particularly from Chinese stainless steel and electric vehicle (EV) supply-chain giants.

The South-east Asian country banned raw nickel ore exports in 2020 to spur investment in processing.

Indeed, regulatory uncertainty has become a key sticking point for foreign investors, more so in a downturn.

“Predictable approvals are the cornerstone of long-term capital commitments,” Chan said. “Foreign investors will still come, but only if project economics and policy direction remain clear.”

Tri Winarno, an official from the Energy and Mineral Resources Ministry, said at a Nov 10 parliamentary hearing that the government is not halting investment, but moving it from semi-finished to finished products to deliver broader economic benefits. The policy is expected to guide new investment towards smelters producing end-products such as EV battery materials.

Hendra Sinadia, executive director at the Indonesian Mining Association, noted that the latest restrictions could deter investors focused on intermediate products, but may attract those with deeper capital resources capable of building advanced downstream facilities.

The outlook is mixed for Chinese players, added Chan from S&P. Chinese investors are poised to benefit from Indonesia’s low-cost ore and infrastructure, but demand for nickel pig iron is tied to China’s slowing property market and steel sector.

Despite short-term headwinds, analysts say Indonesia remains a low-cost producer with abundant resources, making it central to the global nickel ecosystem.