Divya Karyza, Jakarta – Industry players warn that a push to diversify investment in Indonesia's minerals sector under the Agreement on Reciprocal Trade (ART) signed with the United States last week must not disrupt the nickel ecosystem.
Indonesian Nickel Industry Forum (FINI) chairman Arif Perdana Kusumah acknowledged that, while the ART with the US holds significant potential to diversify investment and strengthen Indonesia's position in global supply chains, it must not disrupt the existing industrial ecosystem.
The US currently has a very modest footprint in Indonesian nickel processing but is vying with China for control over global supply chains for critical minerals.
China, meanwhile, has been the largest source of foreign direct investment in Indonesian smelters and refining industries and is therefore the dominant player in domestic nickel processing.
Arif noted that this existing industry landscape, which has positioned Indonesia as the world's top nickel producer, was the result of substantial capital expenditure, long-term planning and decades of hard work.
"Smelter companies operate based on long-term contracts and financing structures," he said. As such, FINI urged the government to be prudent in implementing commitments made under the new agreement, ensuring legal certainty for existing investors.
The ART, signed in Washington, DC, last Thursday by Coordinating Economy Minister Airlangga Hartarto and US Trade Representative (USTR) Jamieson Greer, contains, sweeping provisions set to reshape the critical minerals landscape.
However, a US Supreme Court ruling just hours after the deal was signed raises questions about its ratification in the US.
The two countries have committed to intensifying cooperation to secure US supplies of critical minerals, including rare earths, with Indonesia agreeing to work with US companies on mining, processing and downstream production based on commercial considerations.
The agreement also mandates that Indonesia "implement restrictions" on the excess production of foreign-owned processing facilities, including nickel, cobalt, bauxite, copper, tin and manganese, by ensuring output conforms to Indonesian mining quotas.
Ardhi Ishak, head of industrial relations at the Indonesian Mining Experts Association (Perhapi), said he was "not convinced" about the implementation of the trade agreement with regard to nickel, since the global supply chain remained heavily dominated by China.
"This agreement would be more appropriate for commodities like copper, where a US company already holds a stake in [PT Freeport Indonesia]. The US is not a major player in nickel; there is currently only one active nickel mine operating [in the US]," he told the Post on Monday.
While the US trade pact offered potential for diversification amid Chinese dominance, which now controls more than 60 percent of Indonesian nickel processing, its requirement to "implement restrictions on foreign-owned processing facilities" created friction, he said.
With smelters operating under long-term contracts now facing an impending raw material shortage, Jakarta must navigate between courting new US partners and ensuring existing investors, who built Indonesia into the world's largest nickel producer, receive equal treatment and legal certainty amid tightening supply.
FINI also expressed hope that the government reconsider policies regarding production restrictions or mining quotas, with Arif stating: "Providing fair treatment for all business actors in the processing and refining sector is a must to maintain a healthy investment climate."
The Energy and Mineral Resources Ministry has set the 2026 nickel ore production quota at 260 million tonnes to 270 million tonnes, marking a sharp reduction from last year's 379 million tonnes.
The policy shift has already begun to rattle major industry players.
Eramet Indonesia revealed that the quota approved for PT Weda Bay Nickel, one of the country's largest nickel operations, had been slashed to just 12 million tonnes for 2026, a dramatic decline from the 42 million tonnes the company received in the previous year.
The quota cut risked causing an import surge, threatening smelting operations and jobs.
Indonesian Mining and Energy Forum (IMEF) chairman Singgih Widagdo said the government's decision to slash nickel ore mining quotas was a strategic move rooted in a long-term vision for resource preservation.
"The government's stance in cutting [mining quotas] is more about preserving the longevity of national nickel reserves," Singgih told the Post on Thursday.
According to the chairman, the policy was also designed to address persistent global oversupply, even as the electric vehicle battery sector is expected drive demand in the coming years.
The intervention sent ripples through global markets, with three-month nickel prices on the London Metal Exchange (LME) briefly spiking to US$18,785 per tonne, a three-year high.
Whether the high price level proved sustainable, however, would ultimately depend on Indonesia's actual realized production and the pace of global market absorption, Singgih noted.
Despite the positive price signals, the IMEF chairman warned of significant downstream consequences.
"Nickel production cuts will primarily impact mining companies, particularly mining services and potentially cause layoffs," he said.
Regarding the risk of a surge in nickel ore imports, Singgih said it would depend on global prices. "The deciding factor will be the movement of LME prices. If LME prices remain high, this will undoubtedly lead to an increase in nickel [ore] imports," he said.
Last November, FINI projected that the global nickel oversupply would persist until 2027 as the stainless steel market was only expected to recover in the next two years.
FINI's Arif identified a dramatic fivefold increase in nickel production capacity over the past five years as the main cause of the prolonged glut.
"Now, nickel production capacity has reached approximately 2.5 million tonnes [annually]," he said on Nov. 3 last year, as reported by Bisnis.
"We are seeing a structural oversupply," Arif added, highlighting that the market remained heavily reliant on its traditional backbone, with stainless steel production accounting for 70 percent of domestic nickel absorption, while the electric vehicle battery sector consumed only about 15 percent of the output.
Bank Permata chief economist Josua Pardede warned that the tightened quotas could open the door to a surge in imports, especially if domestic supply was insufficient to maintain smelter operations or if there was a geographical mismatch between ore sources and plant locations.
"Several smelters have continued to import nickel ore from the Philippines to maintain production continuity," he told the Post on Thursday.
To help feed its massive smelting industry, Indonesia imported 15.84 million tonnes of nickel ore last year, almost all of which came from neighboring Philippines.
With domestic production quotas slashed, the Energy Ministry's coal and minerals director general, Tri Winarno, told CNBC Indonesia on Feb. 13 that imports were anticipated to increase marginally to maintain smelter operations.