SRG · Outbound Deep Dive 01
US$14.2 billion invested, yet the rules were rewritten—Indonesia’s four-year nickel policy reversal
Quotas cut by about 30% · Weda Bay quota down 71% · All-in operating costs doubled · Export channel brought under state control
Research summary
Over the past decade, Chinese investment in Indonesia’s nickel value chain has totalled more than US$14.2 billion, turning Sulawesi into the world’s largest production base for nickel pig iron. But the policy combination of 2026 shows that scale of investment does not automatically buy a say over the rules. The moments when companies can exert influence usually come before the formal regulations are issued. Once a regulation is published, what can still be fought for is the pace of implementation, the scope of exemptions, existing contracts and technical definitions, not a reversal of the downstreaming strategy.
US$14.2 billion
Cumulative Chinese investment in Indonesia’s nickel value chain over the past decade
−30%
Year-on-year cut in Indonesia’s 2026 national nickel ore mining quota (28.8–31.4%), from 379 million tonnes to 260–270 million tonnes; on the signalling-phase production-target basis, about 250 million tonnes (−34%)
+132%
Rise in the benchmark price of 1.2%-grade HPAL ore, from US$17.33 to US$40.13 per wet tonne
+100%
Increase in all-in operating costs for Chinese nickel companies (as reported by the China Chamber of Commerce in Indonesia)
Over twelve months, Indonesia’s nickel rules changed at least four times, and always in the same direction.
The core of this round of Indonesian policy is not “tightening”. It is turning nickel from “a commodity that can be bought” into “a strategic asset that must be under sovereign control”. Pricing power, export channels and FX settlement are being redefined at once, and a company’s room to respond depends not on its ability to control costs but on how much autonomy it still has in these three channels.
01 | One year, four rule changes
Any single step looks like “tougher regulation”. Joined up, the steps trace a clear path: from controlling output and price to controlling channels and money.
| Date | Channel | Action | Basis |
|---|---|---|---|
| 23 December 2025 | Output | Minister of Energy and Mineral Resources publicly signals 2026 production cuts | Minister’s public statement |
| January–February 2026 | Output | Nickel ore quota cut from 379 million tonnes to 260–270 million tonnes; approvals revert to an annual cycle | 2026 RKAB |
| 15 April 2026 | Price | HPM correction factor raised from 17% to 30%; cobalt, iron, chromium and other associated metals brought into pricing | Ministerial Decree No. 144.K/MB.01/MEM.B/2026 |
| 11 May 2026 | Price | Suspension announced of all core provisions of the new royalty scheme | Government announcement |
| 1 June 2026 | Channel | Exports of strategic natural-resource commodities routed through the state export entity (DSI); first batch: coal, crude palm oil, ferroalloys; June–December transition period | PP 24/2026 (published 20 May) |
| Late May 2026 | Channel | Government confirms that some products, including NPI, are excluded from the centralised export arrangements | Government confirmation |
| 29 May 2026 | Channel | Ferroalloy exports require electronic technical verification; transition period to 31 December 2026 | Ministry of Trade PM 17/2026 |
| 1 June 2026 | Money | 100% of export FX proceeds to be placed in the Himbara system; non-oil-and-gas: 100% retained for at least 12 months | PP 21/2026 |
| January 2027 | Channel | DSI becomes a trading entity that buys directly, holds goods and bears trading risk | Government’s published plan |
The defining feature is not tightening at a single point: output, price, channels and money are all being used at once.
A 30% cut at national level can mean a 70% cut at an individual mine. Weda Bay’s quota was cut by 71%. With work plan and budget (RKAB) approvals back on an annual cycle rather than once every three years, companies can no longer use “multi-year quotas” to model long-term investments.
The national and single-mine measures of the quota cut differ markedly: the national average cut is about 30% (a range of 28.8–31.4%, corresponding to approved quotas of 260–270 million tonnes), while Weda Bay’s reached 71%, so the hit to an individual mine is far larger than the national average. The production target floated during the policy signalling phase was about 250 million tonnes (−34%).
View data
| 2026 nickel ore quota cuts, year on | % |
|---|---|
| National · approved quota 270 Mt | 28.8% |
| National · approved quota 260 Mt | 31.4% |
| National · signalling-phase target ~250 Mt | 34% |
| Weda Bay · 42 Mt → 12 Mt (wet) | 71% |
- Price: bringing associated metals into the nickel ore benchmark price (HPM) is a “change of definition” that alters the cost structure itself; for a high-pressure acid leach (HPAL) smelter running on low-grade ore, it may matter more than the higher correction factor.
- Channel: nickel products are not listed directly; ferroalloys (including ferronickel) are covered, but nickel pig iron (NPI) is exempt. Under the regulation, the state export entity sets the export sale price and takes a margin within a reasonable range, and the pricing method is not disclosed; during the transition, exporters may still export on their own account but must report contract, pricing and transaction data to DSI.
- Existing contracts: offtake contracts signed before 1 June must accept the state export entity’s assessment, putting pressure on project financings secured on long-term offtake agreements.
- Hard deadline: the PM 17/2026 transition period expires on 31 December 2026, after which inspection reports can no longer serve as the complete documentation for customs declarations made through the state export entity. Companies have less than four months to switch contracting parties and integrate systems.
- FX: model it separately from the export channel, because it changes how money comes in, how long it stays and how it can be used. The cap on converting FX into rupiah has been cut from 100% to 50%. China, the United States, Canada and Australia, which have bilateral trade agreements with Indonesia, can qualify for an exemption: placements at banks outside the state-owned bank group (Himbara) are capped at 30% for no more than three months.
02 | Mechanism: Why Indonesia had to rewrite pricing power over nickel
Four macro pressures lie behind this policy, and until they are resolved its direction will not change. Read it as “resource nationalism” and you will underestimate its staying power.
- Fiscal
- In 2025 tax revenue reached only 87.6% of the budget target, and the deficit rose to 2.92% of GDP, close to the legal ceiling of 3%.
- Exchange rate
- The rupiah weakened against the US dollar from about 15,122 in October 2024 to about 18,000 in June 2026, its weakest level since the Asian financial crisis; one aim of FX retention is to bring export revenue back onshore.
- Ratings
- Moody’s and Fitch in turn assigned negative outlooks, both citing policy uncertainty.
- Industry
- After the 2014 ban on raw ore exports, more than US$30 billion of foreign investment poured into smelting, and by 2024 Indonesia’s share of global NPI output had risen from under 5% to over 50%. Once smelting is in place, the downstreaming target automatically moves on to the next stop: battery materials, and then possibly batteries.
A key judgement
When a country controls two-thirds of global nickel supply, it has pricing leverage, and leverage exists to be used. “I have invested so much that they would not dare touch me” is a common mistake: precisely because the costs are already sunk, the other side has all the more incentive to extract the remaining value.
03 | Transmission: From the ore-price formula to the smelter P&L
Policy ends up in project cash flows through ore prices, reagents and utilisation, and because asset structures differ, the same shock lands very differently on each company.
The benchmark price of 1.2%-grade HPAL ore rose from US$17.33 to US$40.13 per wet tonne (+132%); the correction factor rose from 17% to 30% (+76.5%); all-in HPAL processing costs doubled. The three indicators correspond to the ore end, the pricing-rule end and the smelter end. The benchmark price and correction factor follow Ministerial Decree No. 144.K/MB.01/MEM.B/2026; production cost is an all-in HPAL processing cost index (2025=100), on the basis reported by the China Chamber of Commerce in Indonesia.
View data
| Three key points of cost transmissio | Before adjustment | After adjustment |
|---|---|---|
| HPAL ore benchmark price | 100 | 231.6 |
| HPM correction factor | 100 | 176.5 |
| HPAL all-in processing cost | 100 | 200 |
On the cost side, the benchmark price of 1.2%-grade HPAL ore rose 132%, and sulphur prices jumped by more than RMB 5,000 per tonne year on year.
On the output side, data from the Indonesian Nickel Industry Forum show that, because of the quota cuts, capacity utilisation at the country’s rotary kiln–electric furnace (RKEF) smelters fell from 84% last year to 76%. Measured against the approved quotas and the nominal ore demand of smelting capacity, the full-year nickel ore supply gap is estimated at about 40–50 million wet tonnes.
Growth in Chinese companies’ investment in Indonesia has already slowed from 35% to 18%. Companies can absorb rising costs, but they struggle to absorb rule changes they cannot model.
- Huayou Cobalt
- H1 revenue rose 49.39%, but some lines at the Huafei HPAL project were shut for maintenance from May because of the sulphur-price surge combined with higher policy costs, and Q2 net profit attributable to shareholders fell 59.55% quarter on quarter.
- Lygend Resources
- Its HPAL lines ran at full capacity and the gross margin on nickel-cobalt compounds rose to 45.5%, yet the average purchase price of nickel ore for its pyrometallurgical (RKEF) process rose 97.82% from the 2025 full-year level: the profit comes from a timing gap.
- GEM
- Mixed hydroxide precipitate (MHP) nickel-metal output at its QMB project fell 37% year on year, only 40% of the H1 plan; besides scarce and costlier sulphur, a rain-triggered slide at the residue storage facility in February and equipment maintenance were also major factors.
- Tsingshan
- Weda Bay Nickel, in which Tsingshan holds a stake, halted production after exhausting its quota by May: not because costs were too high, but because there was no quota left to mine.
Chinese companies from the same home country do not naturally form a community of interest. Bloomberg reported, citing people familiar with the matter, that senior executives at the four companies had discussed lowering operating rates at Indonesian HPAL projects, with one option a cut of about 30% each, but no agreement was reached.
Mining-rights holders want quotas, smelters want steadier ore supply and lower ore prices, and downstream materials producers want more certain deliveries; their asks point in different directions. The hardest hit are not necessarily those with the heaviest assets: without quota, a mining-rights holder has no output, while a smelter can still adjust its ore-grade mix, export routes and FX retention periods.
04 | Windows: Policy can be negotiated, but what is negotiated is pace
What can be negotiated is the intensity of enforcement, not the strategic direction.
Public consultation does not necessarily come with a fixed, adequate comment period: PP 24/2026 allowed only 12 days between publication and entry into force. A minister’s public remarks, unusual changes in the pace of RKAB approvals, targeted outreach to industry and government system testing should all be treated as a “quasi-consultation period”.
In SRG’s framework, the points at which companies can make their case break down into four windows relative to the effective date T: T−120 to T−90 days, T−90 to T−30 days, T−30 to T+30 days (concentrated feedback) and T+30 to T+180 days. The later the window, the less can be changed.
The 11 May suspension came during the concentrated-feedback stage, and all it did was lower enforcement intensity. Quota cuts, pricing reform, export governance: not one of the three has been withdrawn. The case that actually changed scope, the NPI exemption, rested on technical arguments, not on statements of position.
Write asks as parameters the government can adopt, not as objections of principle: for example, tiered quotas, grandfather clauses for existing contracts or a 90-day no-penalty period.
- 1 Support the goal
- Begin by acknowledging policy goals such as price stability, higher revenue and downstreaming; oppose the goal itself and the submission will be filed straight under “statement of position”.
- 2 Identify the mismatch in mechanism
- Explain why the current parameters actually undermine that goal.
- 3 Provide verifiable data
- Use project-level data that customs can verify and the tax authority can reconcile.
- 4 Offer two tiers of alternatives
- A preferred option plus an acceptable floor, with specific clauses and implementation dates.
- 5 Build in a review mechanism
- Set 30/60/90-day indicators and a lead agency, turning a one-off appeal into a standing data channel.
Raising problems individually is almost useless; what works is a local association combined with a list of technical issues. Political objections can come late, but the evidence chain cannot.
05 | Action: Four questions, four tasks, four thresholds
Policy change in resource-holding countries is a board-level risk issue: set exposure limits for each country, and stress-test four variables, namely quotas, the pricing coefficient, export restrictions and FX retention.
Four questions: due diligence must also assess how changeable the rules are, asking who holds pricing power, who controls the export channel, who controls settlement and FX, and how revocable the project’s rights are.
- Late September
- Complete the list of DSI-covered products and contracts, a usage matrix for retained FX funds and a gap analysis of 2027 transaction structures.
- October
- Submit a first set of operating data through local associations; ask for confirmation of how payment, title, credit risk, pricing disputes and existing contracts will be handled.
- November
- Run end-to-end system tests; revise documentation in step with customers, banks and insurers.
- December
- Approve 2027 interim authorisations, shutdown thresholds and dispute contingency plans. Do not take “policy postponement” as the base case.
Four thresholds: months of available cash cover, days of secured ore supply, capacity utilisation, and receivables and goods in transit held up by regulation. If any one is breached, the issue moves from “policy engagement” to a “business continuity event”.
Conclusion | Downstreaming has no final stop
Indonesia has demonstrated a replicable governance model: quotas to control output, formulas to control price, state enterprises to control channels and retention rules to control money. Together they redistribute the state’s share of the value chain without any change to the shareholding structure.
Indonesia’s path since its 2014 ban on raw ore exports, “using controls to win capacity, then using capacity to win a say over the rules”, is being borrowed directly by resource-holding countries in Africa and Latin America. When an asset’s value depends heavily on one country’s policy stance, its risk is sovereign risk, not operating risk.
The expectation most in need of adjustment is that “policy will go back to how it was”: the purpose of a pullback is to keep the industry from breaking, not to restore investors’ returns to 2020–2024 levels.
Once smelting is built, the policy focus moves further down the chain. This is not a cycle but a structural repricing. What companies need is earlier structural design: having something ready to submit when the window opens.
1. Indonesia’s Ministry of Energy and Mineral Resources, Ministerial Decree No. 144.K/MB.01/MEM.B/2026 (signed 10 April 2026, effective 15 April); Indonesia’s 2026 work plan and budget (RKAB) announcement; Indonesia’s Government Regulation No. 24 (PP 24/2026, export governance for strategic natural-resource commodities) and Government Regulation No. 21 (PP 21/2026, DHE SDA foreign exchange management, effective 1 June 2026); Bank Indonesia regulations PBI 5/2026 and PADG 16/2026.
2. Announcements and transition-period arrangements from Indonesia’s Ministry of Trade and Danantara Sumberdaya Indonesia (DSI) on export governance for strategic natural-resource commodities; statements by Indonesia’s Cabinet Secretariat and DSI on periodic review and transparency (June 2026).
3. 2026 interim reports and public announcements of Huayou Cobalt, Lygend Resources and GEM; Bloomberg reporting on discussions of operating rates at Indonesian HPAL projects (August 2026).
4. Announcements by Fitch Ratings and Moody’s revising the outlook on Indonesia’s sovereign credit rating (February–March 2026).
5. The four feedback windows and the four-question “rule repricing” framework are SRG analysis; the policy decision process is an analytical reconstruction based on the hierarchy of legal instruments, public meetings and the outcomes of policy feedback, not internal minutes disclosed by the government; policy status and data are as of 16 September 2026.
6. Note on definitions: two measures of the nickel ore quota cut co-exist—the 2026 production target of about 250 million tonnes floated during the policy signalling phase (about −34% year on year), and the RKAB quotas of 260–270 million tonnes approved in February (down 28.8–31.4% year on year). This article uses the approved basis as its baseline. The figures of US$17.33→40.13 per wet tonne for the benchmark price of 1.2%-grade HPAL ore come from tracking of spot quotations at the time; we recommend checking them against the ministry’s monthly published HPM tables before using them in contract calculations. The supply gap of 40–50 million wet tonnes is an analytical estimate by SRG based on approved quotas and the nominal demand of smelting capacity.
· Indonesia’s Ministry of Energy and Mineral Resources, Ministerial Decree No. 144.K/MB.01/MEM.B/2026 (effective 15 April 2026; benchmark price correction factor raised from 17% to 30%; associated metals brought into pricing)
· Indonesia’s 2026 work plan and budget (RKAB) quota plan (February 2026; nickel ore quota cut from 379 million tonnes to 260–270 million tonnes, down 28.8–31.4% year on year; switched to annual approval)
· Indonesia’s Government Regulation No. 24 (PP 24/2026, State Gazette LN 2026 No. 58 / TLN No. 7178; published 20 May 2026, effective 1 June; export governance framework for strategic natural-resource commodities; first designated commodities coal, crude palm oil and ferroalloys; transition period June–December 2026)
· Indonesia’s Ministry of Trade Regulation No. 17 (PM 17/2026, State Gazette BN 2026 No. 349; issued 29 May 2026; technical verification and channelling arrangements for ferroalloy exports; transition period to 31 December 2026)
· Indonesia’s Government Regulation No. 21 (PP 21/2026, State Gazette LN 2026 No. 50 / TLN No. 7175; issued 6 May 2026, effective 1 June; third amendment to PP 36/2023; 100% retention of non-oil-and-gas export FX for no less than 12 months; under bilateral trade agreements the retention ratio can fall to 30%, for three months)
· Bank Indonesia PBI 5/2026 and PADG 16/2026 implementing guidance (FX management for export proceeds and import payments)
· Danantara Sumberdaya Indonesia (DSI) statement on transition arrangements, transparency and periodic review (5 June 2026)
· Indonesia’s Cabinet Secretariat announcement on DSI’s natural-resource export policy
· Indonesia’s Ministry of Energy and Mineral Resources rules changing the nickel ore work plan and budget approval cycle (from once every three years to once a year)
· Reuters: some products exempted, including NPI (22 May 2026)
SRG’s Global Investment Compliance Navigator tracks, in real time, changes to resource-control policies, quota approvals, export channels and FX retention rules in Indonesia and 60+ jurisdictions, helping companies investing abroad turn policy signals into quantified exposure stress tests and adjustments to the pace of investment as the rules are repriced.
See RiskSI →Disclaimer: This article is for information only and does not constitute investment advice. Its analysis of Indonesia’s nickel ore policy is based on public information available as of mid-September 2026; actual application is subject to policy adjustments, whether implementing rules are issued, individual companies’ contractual arrangements and differences between jurisdictions. Readers should consult professional legal and compliance advisers before making cross-border investment decisions.