Indonesia Plans Major Nickel Production Cut in 2025 to Boost Prices

JAKARTA, RAKYAT NEWS – The Indonesian government is reportedly considering a significant reduction in nickel ore production for 2025. According to sources, the plan aims to cut production by 44.85%, with an expected output of 150 million tons. This move is part of an effort to boost nickel prices and safeguard the country’s diminishing nickel reserves.

This decision comes in response to the growing oversupply of nickel in the global market. Indonesia, which produces more than 50% of the world’s nickel supply, has seen a surge in production over recent years. The country’s nickel output increased from 307,000 tons to 383,000 tons in the third quarter of 2024, contributing to a global surplus of 253,000 tons. This excess supply has led to a decline in nickel prices, prompting the government to consider reducing production.

Energy economics expert Yayan Satyaki, from the University of Padjadjaran, stated that the reduction in production could help address the price downturn by tightening supply. However, he also expressed concerns about the potential negative effects on Indonesia’s downstream nickel industry, which is a key focus of the country’s long-term economic strategy.

Yayan emphasized that Indonesia’s mining sector is highly extractive, meaning it primarily focuses on raw material extraction without generating significant added value. He cited data from Indonesia’s 2016 Input-Output Table, which revealed that the multiplier effect of nickel production is just 1.09. This means the nickel industry only adds a modest 9% value to downstream sectors, which is relatively low compared to other industries.

In contrast, the coal industry in Indonesia boasts a much higher multiplier effect of 1.949, indicating that coal production has a far greater economic impact on the country’s economy. Yayan argued that the ideal multiplier effect for any industry should be at least 2 or 3, in order to significantly benefit both intermediate and downstream industries.

While the reduction in production could help stabilize the global nickel market and raise prices, it may also hinder the development of Indonesia’s downstream nickel industry. This sector, which focuses on processing nickel into more valuable products, is crucial for reducing the country’s reliance on raw material exports and creating higher-value jobs.

Indonesia has long been looking to develop its downstream industries, particularly in sectors such as electric vehicle (EV) battery production, where nickel plays a vital role. However, the country has faced challenges in transitioning from raw material extraction to value-added manufacturing. The government’s proposed production cuts could slow the growth of this strategic sector.

As Indonesia looks to manage its vast nickel reserves more sustainably, the decision to limit production may help balance market conditions, but it also highlights the need for greater investment in downstream industries. The country’s ability to add value to its natural resources will be key to ensuring long-term economic growth and industrial diversification.

While the reduction in nickel production in 2025 may help improve prices and conserve reserves, it raises important questions about Indonesia’s industrial future. The challenge lies in fostering a more sustainable and value-added mining industry, while also supporting the growth of downstream sectors that can generate greater economic benefits. (Uki Ruknuddin)