Indonesia's nickel challenge shifts from mining to processing

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Indonesia has already won the race to become the world's dominant nickel producer. The next challenge is more complex: economically refining increasingly difficult laterite ores into battery-grade materials while reducing costs, emissions and operational risk.

According to the US Geological Survey, Indonesia holds 62 million tonnes of nickel reserves, contributing 44.3% of the global total as of February 2026. It also accounted for an estimated 66.7% of global mine production in 2025. Most deposits lie beneath the tropical landscapes of Sulawesi and Halmahera, where millions of years of weathering created vast laterite deposits close to the surface, rather than conventional sulphide ores.

Indonesia's geology largely dictates how the industry operates. Laterite deposits comprise two distinct ore horizons: higher-grade saprolite, traditionally processed into ferronickel and nickel pig iron (NPI) for stainless steel, and lower-grade limonite, which until recently was often treated as waste. The rapid expansion of electric vehicle (EV) batteries has changed that equation.

High-pressure acid leaching (HPAL) has transformed limonite into a valuable feedstock capable of producing mixed hydroxide precipitate, an intermediate for battery-grade nickel sulphate. Indonesia now hosts four operating HPAL facilities, with further capacity planned.

Government policy accelerated that transition. The 2020 ban on raw nickel ore exports forced investment in domestic refining and encouraged billions of dollars of mainly Chinese investment into industrial hubs such as the Indonesia Morowali Industrial Park (IMIP), Indonesia Weda Bay Industrial Park and Obi Island. Today, Indonesia exports increasingly refined products rather than raw ore, making downstream processing central to its industrial strategy.

Indonesia's processing industry now relies on two fundamentally different technologies.

Rotary kiln electric furnace (RKEF) technology remains the backbone of stainless steel production, converting saprolite into NPI and ferronickel. Compared with HPAL, RKEF is relatively mature, requires lower upfront capital investment and offers operational flexibility. Increasingly, some producers are converting NPI into nickel matte, creating a secondary pathway into battery materials without constructing full HPAL facilities.

HPAL addresses a different problem: unlocking value from lower-grade limonite. It produces battery-grade intermediates directly but requires high-pressure tanks operating at around 250°C, large volumes of sulphuric acid and complex residue management systems. Historically, HPAL projects have suffered from cost overruns, technical failures and commissioning delays, making execution risk considerably higher than conventional pyrometallurgical processing. The International Energy Agency (IEA) continues to identify HPAL delivery as one of the principal risks facing future Class 1 nickel supply – the high-purity (at least 99.8% nickel) material required for EV batteries and advanced energy storage systems.

The challenge is no longer simply technical. HPAL economics have become increasingly sensitive to reagent costs. Approximately 9t of sulphur are required to produce 1t of contained nickel. According to the IEA, an 80% increase in sulphur prices raises operating costs by around $1.70/kg of nickel, contributing to production cuts at some Indonesian HPAL operations. At the same time, revisions to Indonesia's benchmark ore pricing have increased limonite feedstock costs, further compressing margins.

Energy remains another structural disadvantage. Laterite ores cannot be economically upgraded through conventional beneficiation, meaning the entire ore body must be processed. RKEF operations can consume up to 40MW-hours (MWh)/t of nickel produced, while HPAL typically requires 10–20MWh/t. Although less electricity-intensive than smelting, HPAL still processes relatively low-grade ore and remains significantly more energy intensive than refining sulphide deposits.

Because much of Indonesia's refining industry relies on captive coal-fired power stations, battery-grade nickel production carries one of the highest carbon footprints globally, creating an uncomfortable contradiction for a metal central to energy transition technologies.

Indonesia's success is no longer measured by tonnes mined. It already dominates global supply and continues to shape international pricing through production quotas and downstream industrial policy.

The next competitive advantage will come from processing efficiency. Operators that reduce acid consumption, improve HPAL plant uptime, lower energy intensity and decarbonise refining will be better placed to compete in an increasingly oversupplied market.

As GlobalData notes in Indonesia Nickel Mining to 2035, Indonesia has become the primary source of incremental global nickel supply, with mine output expected to grow steadily through 2035. Sustaining that growth, however, will depend less on discovering new ore than on extracting greater value from the country's vast laterite resource, supported by policies including export controls and production quotas that aim to establish Indonesia as a global downstream processing hub.