Chinese investors control 75% of Indonesia nickel refining capacity: report

Chinese investors have managed to gain control over most nickel refining capacity in Indonesia, the world’s biggest producer of the mineral – a dominance that may give China a greater say over future prices while crowding out rivals, a new report suggests.

Chinese companies or shareholders ultimately control at least three-quarters of Indonesia’s nickel refining capacity, though the holdings are hidden behind “layers of shell companies” to mask foreign ownership, according to an analysis prepared by the Washington-based Center for Advanced Defence Studies.

Global demand for nickel is expected to almost double to as many as 6 million tonnes by 2040 as clean energy technologies gain in popularity. The mineral is used in the production of electric vehicle batteries and in the making of stainless steel, among other applications. Indonesia is the world’s No. 2 stainless steel producer.

“China’s entrenched position in the industry makes it difficult for companies to establish a fully independent and secure supply chain outside of China,” the report’s authors conclude. “The reliance on Chinese-controlled nickel production not only raises concerns about supply chain resilience, but also places U.S. and European automakers at a competitive disadvantage in the global EV market amid increasingly restrictive policies against trade with China. These competing pressures have the potential to hinder innovation, delay production timelines and disrupt supply.”

Foreign influence

Since Indonesia is seeking to use the nickel industry for economic growth, foreign influence could curb the country’s ability to control and shape the industry for its benefit, the report adds.

Indonesia holds the largest nickel reserves on the planet. Last year the country produced 63% of the world’s nickel, up from 28% in 2020 – a share could easily rise to 75% within the next three to five years, according to Jim Lennon, a London-based managing director of commodities at Australia’s Macquarie Group.

Using data from Indonesia’s Ministry of Energy and Mineral Resources, the report’s authors identified 19 refineries that together accounted for 90% of domestic nickel production capacity in 2023.

Several Chinese companies involved in Indonesia’s nickel refining industry either have connections to the People’s Republic of China government or have received backing from Chinese banks, the report says. For example, the People’s Government of the Guangdong Province and the Department of Finance of Guangdong Province together own the biggest share of Indonesian registered refiner PT Guang Ching Nickel and Stainless Steel Industry, according to the document.

Duo control

Two Chinese companies – Tsingshan Holding and Jiangsu Delong Nickel Industry – have “considerable” shares in refineries that account for over 70% of Indonesia’s nickel refining capacity, the report also says, citing public records.

“Not only does this ownership concentration raise concerns about industry dominance, but these two companies have also been associated with significant environmental and social issues,” the report says.

Much of Indonesia’s nickel refining industry depends on coal-fired power plants. This raises concerns about the use of fossil fuels to power the renewable energy transition, the report says.

Several media outlets have singled out Indonesian processing facilities for lax workplace safety. More than 90 deaths and over 100 injuries were reported in Indonesian processing facilities between 2015 and 2023, while safety protocols in some smelters were frequently ignored, the report said. In 2024, the U.S. Department of Labor added Indonesian nickel to its annual list of goods produced by forced labour.

Price slump

Nickel prices have slumped sharply since 2022 amid a widening production glut – most of which is due to rising output from Indonesia. Lower metal prices, combined with significant cost inflation across the mining sector, have forced many producers outside Indonesia to suspend operations. 

Last year the annual average London Metals Exchange price for the silvery-white metal plunged 22% year-on-year to US$16,812 per tonne. Nickel is down about 2.4% this year as of Wednesday, trading at about US$15,280 per tonne.

Indonesia could cut its nickel ore production quota for this year to between 150 million and 200 million tonnes in an attempt to prop up prices, the country’s Ministry of Energy and Mineral Resources said last week. News of the quota reduction comes as Indonesia prepares to revise the country’s mining law, following a pledge by President Prabowo Subianto to speed up development of the mineral processing industry. One of the proposed changes would see companies being given priority access to mining areas for “downstreaming” purposes.