In 2020, Indonesia banned the export of raw nickel ore. Within four years, Indonesia’s share of global nickel production had risen from 31.5% to 60%. At least eight nickel mines in Australia and New Caledonia closed. BHP wrote down $3.5 billion on its Western Australian nickel operations and suspended them. Glencore closed its Koniambo smelter in New Caledonia. The only operating nickel mine in the United States — Eagle Mine in Michigan — is scheduled to close by 2026. Macquarie Group estimates that roughly 250,000 tonnes of annual production has been taken out of the global market by mine closures, with another 190,000 tonnes of planned output delayed. At $18,000 a tonne, 35% of global nickel production is unprofitable. At $15,000, that number jumps to 75%. The mechanism that did this was straightforward: Chinese companies invested roughly $30 billion in Indonesian nickel smelting capacity, using technology that could convert low-grade laterite ore — traditionally too expensive to process — into nickel pig iron and battery-grade nickel at costs that undercut every sulfide mine in the Western world. Indonesia provided the ore and the export ban that forced domestic processing. China provided the capital, the technology, and the smelters. Together, they flooded the global market with cheap nickel, cratered the price, and eliminated the competition. An Indonesian government official reportedly told struggling Western producers not to expect prices above $18,000 a tonne and said the country would ensure the market remains well supplied. The critical minerals supply chain has a new case study in how resource nationalism, backed by Chinese capital, can restructure a global commodity market in under five years.
Why nickel matters
Nickel’s industrial demand splits into two categories that are pulling in opposite directions. The legacy demand — roughly 60% of global consumption — is stainless steel. Nickel alloyed with chromium and iron produces the corrosion-resistant steel used in everything from kitchen sinks to chemical processing tanks to surgical instruments. Stainless steel demand grows with global industrial activity — slowly, predictably, and without the dramatic growth curves that battery metals generate.
The growth demand is EV batteries. Nickel-manganese-cobalt cathodes — NMC — are the dominant battery chemistry in European and Korean electric vehicles, offering higher energy density and longer range than the lithium iron phosphate (LFP) chemistry that dominates in China. A typical NMC battery pack for a long-range EV contains 30 to 50 kilograms of nickel. Higher-nickel formulations — NMC 811, where nickel constitutes 80% of the cathode — reduce the need for expensive cobalt while increasing energy density. The trajectory for years was clear: more nickel per battery, more batteries per year, nickel demand going parabolic.
Then LFP happened. LFP batteries use no nickel and no cobalt. They’re cheaper, safer, last longer, and — with improvements in energy density — increasingly competitive on range. In China, NMC’s share of the EV battery market fell from 25% in 2024 to 18% in the first nine months of 2025. Globally, LFP reached 50% of all EV batteries sold in 2025. The chemistry shift doesn’t eliminate nickel demand from batteries — NMC still dominates in premium vehicles, European production, and applications where energy density justifies the cost premium. But it slows the demand growth rate at exactly the moment Indonesia’s supply surge is flooding the market. The result is a 261,000-tonne surplus projected for 2026, the third consecutive year of oversupply, with LME warehouse inventories at their highest level in more than four years.
How Indonesia did it
Indonesia’s nickel strategy is the most successful example of resource nationalism in the 21st century, and the playbook is worth understanding because it’s being studied by every mineral-rich government on Earth.
Step one: ban the export of raw ore. Indonesia prohibited raw nickel ore exports in January 2020, forcing any company that wanted Indonesian nickel to build processing capacity inside the country. The policy created an immediate incentive for foreign investment in domestic smelters.
Step two: welcome Chinese capital. Tsingshan Holding Group — which produces nearly a third of the world’s stainless steel — built the Indonesia Morowali Industrial Park in Central Sulawesi, a massive complex of nickel pig iron smelters, stainless steel mills, and HPAL (high-pressure acid leach) facilities for battery-grade nickel. CATL, the world’s largest battery manufacturer, is building a mine-to-battery supply chain in North Maluku and a battery plant in West Java. Chinese companies now control approximately 75% of Indonesia’s nickel smelting capacity.
Step three: undercut global competitors. Indonesian NPI production costs are low enough — thanks to cheap local labor, integrated operations, and coal-fired power — that producers remained profitable at price levels that forced Australian, New Caledonian, and Canadian mines into closure. The environmental cost is significant: deforestation of tropical rainforest for laterite mining, acid waste from HPAL processing, coal-powered smelters producing some of the highest-carbon nickel on the market, and tailings management practices that environmental groups have documented as inadequate. The “clean energy” supply chain for EVs runs through one of the dirtiest nickel production systems in the world.
Step four: manage the surplus. By late 2025, Jakarta recognized the oversupply was depressing prices enough to threaten its own producers. The government cut 2026 mining quotas to 260-270 million wet metric tonnes, down roughly 30% from 2025’s 379 million. It shortened quota validity from three years to one year. It banned new NPI smelters and HPAL plants. PT Vale Indonesia temporarily halted mining in January 2026 after failing to secure its quota approval. Tsingshan suspended production lines at Morowali. The government that flooded the market is now trying to drain it — classic OPEC logic applied to nickel.
The class problem
There is a detail the market cares about enormously that most coverage glosses: not all nickel is the same. Class 1 nickel is high-purity metal (99.8%+ nickel content) — the form that can be delivered onto the London Metal Exchange and that battery cathode manufacturers need for NMC production. Class 2 nickel includes nickel pig iron and ferronickel — lower-purity products suitable for stainless steel but not for batteries without additional processing. Indonesia overwhelmingly produces Class 2. The HPAL facilities produce mixed hydroxide precipitate, which can be refined into battery-grade nickel sulfate — but that refining step happens mostly in China.
The class distinction matters because the global nickel surplus is concentrated in Class 2. The Class 1 market is tighter. LME warehouse inventories are rising because Chinese and Indonesian producers are refining excess feedstock into Class 1 metal and dumping it onto the exchange — China’s refined nickel exports are up 55% year-on-year through October 2025. The price signal that the market sends — “there’s too much nickel” — is accurate for stainless steel feedstock and misleading for battery-grade material, where the supply chain still runs through Chinese refining that the CHIPS Act and the Inflation Reduction Act were specifically designed to reduce dependence on.
The Western response
The response has been slow and expensive. Vale is building a nickel sulfate refinery in Bécancour, Québec, with deliveries to General Motors targeted for the second half of 2026. Canada Nickel’s Crawford project in Ontario has Department of Defense funding and Samsung SDI investment. Talon Metals received $20.6 million from the DOD and $115 million from the DOE for a processing plant in North Dakota tied to a copper-nickel project in Minnesota led by a Glencore-Teck joint venture. These are meaningful investments. They are also, collectively, a fraction of the capital China has deployed in Indonesia. The semiconductor supply chain demonstrated that fab construction takes years and billions of dollars. Nickel mine development takes 5-10 years minimum from discovery to production, requires $1-3 billion per project, and — at current prices — struggles to attract financing because Indonesian supply has set a price floor that Western sulfide projects can’t compete with. The free market solution to Indonesian nickel dominance is to build mines that lose money at current prices and hope the market recovers before the capital runs out.
Why it matters
Nickel is the Rare Earth Elements course’s resource nationalism case study — the lecture that shows what happens when a major mineral-producing country decides to capture downstream value rather than exporting raw materials. The antimony and gallium/germanium cases are about export controls — restricting supply as leverage. Indonesia’s nickel strategy is the opposite: flooding supply as leverage, using Chinese-backed processing capacity to undercut competitors, eliminate their mines, and establish a dominant market position that will take a decade to challenge even if prices recover. The ARMSCOR post documents a state that built an arms industry to circumvent an embargo. Indonesia built a nickel industry to circumvent the global cost curve.
The irony of the energy transition’s nickel dependence is structural. Western governments want clean EVs made with responsibly sourced materials. The cheapest nickel on Earth comes from coal-fired smelters processing laterite ore strip-mined from Indonesian rainforest, financed by Chinese capital, refined into battery-grade material in Chinese facilities, and sold to automakers who need it to qualify for IRA subsidies requiring critical minerals sourced from U.S. free trade agreement partners — which Indonesia is not. The lithium supply chain routes through Chinese refining. The graphite supply chain routes through Chinese processing. The nickel supply chain routes through Chinese-built smelters in Indonesia. The vanadium alternative to lithium-ion storage avoids nickel entirely but introduces its own concentration risk. Each solution to one dependency creates another.
This is the kind of supply chain our Rare Earth Elements course was built to map — where a single export ban in 2020 restructured a global commodity market by 2024, eliminated the Western competition by 2025, and left the energy transition dependent on the dirtiest nickel production system on Earth, financed by the country the energy transition’s trade policy was designed to reduce dependence on.