Continuing the Downstreaming Agenda: From Smelting to Manufacturing

Mineral downstreaming is one of Indonesia’s most ambitious economic agendas. It began with the 2009 Mineral and Coal Law, which mandated the construction of smelters and prohibited the export of raw ore, effectively coming into force in 2014.

More than a decade later, these efforts have shown results: 53 smelters for nickel, bauxite, copper, and tin are already operational, with no fewer than 100 more in the construction and planning phases (Ministry of Energy and Mineral Resources). In the first half of 2026 alone, the value of mineral downstreaming investment reached IDR 206.5 trillion.

Given these initial results, there is no reason not to continue the downstreaming agenda. However, ‘continuing’ here must be interpreted literally: processing minerals further into the mid-stream and downstream sectors.

There is no need to repeat the pattern used for almost all mineral commodities, which is to attract as much smelter investment as possible. While this pattern has provided significant economic benefits, it is reaching its limits due to environmental and social impacts, as well as the rapid depletion of mineral reserves and resources. Efforts towards further processing have already shown early success.

Nickel is a prime example; its production chain has now reached battery manufacturing. For instance, PT HLI Green Power’s Nickel Manganese Cobalt (NMC) battery cell production facility in Karawang is operational with an initial capacity of 10 GWh per year, equivalent to the needs of approximately 150,000 electric vehicles. Nevertheless, this advanced downstreaming effort requires a more complex strategy than merely attracting smelter investors.

Challenges Towards Manufacturing

Currently, about 71% of Indonesia’s nickel utilisation is directed towards the stainless steel industry, while nickel’s contribution to the battery industry is only around 3% (Indonesia Mining Association). This indicates that in the case of nickel, the strategy of attracting smelter investment is approaching a point of saturation.

Although the purification and smelting of raw ore by smelters produces pure metals or semi-finished products, the value chain still stops midway, without automatically moving up to the midstream or downstream products.

One of the main challenges is that despite possessing vast mineral resources, Indonesia still lags in the technology required for further processing. Consequently, almost all large-scale smelter projects must partner with foreign technology providers.

In the case of nickel, precursor cathode active material (pCAM) and cathodes—two crucial links in the battery chain—still need to be built from scratch (Ministry of Investment and Downstreaming). A similar pattern exists where downstream chains do not automatically follow smelter production, which also threatens other minerals whose downstreaming has only just begun.

The Running Hourglass

The Indonesian government appears to have realised that in the future, the success of inviting more smelters does not fundamentally equate to the success of continuing downstreaming. Repeating the old strategy on a larger scale will deplete non-renewable natural resources without ever truly moving up the production chain.

This hourglass is indeed running, at least for nickel. The Ministry of Energy and Mineral Resources estimates that the national nickel reserve of approximately 5.9 billion tonnes could be exhausted within 11 years if the production rate continues to follow the proposed Work Plan and Budget (RKAB) of companies, which in 2025 alone reached 490 million tonnes.

It is unsurprising that for 2026, the government only approved nickel ore RKAB in the range of 260 million tonnes. Some established smelters even have to import additional nickel ore from the Philippines, a fact that further demonstrates the imbalance between the speed of the smelting process and the sustainability of mineral reserves and the effort to extend the value chain through downstreaming.

The risks of this old pattern are no longer hypothetical; it is not just about nickel or a sectoral issue, but is becoming visible in regional development. The economic growth of West Nusa Tenggara (NTB) recorded declines of -0.5%, -1.47%, and -0.82% (y-on-y) in the fourth quarter of 2024 and the first and second quarters of 2025 (BPS) following the cessation of concentrate exports and the temporary closure of PT Amman Mineral’s copper-gold smelter in Sumbawa.

This situation demonstrates the risk of regional economic dependence on mining and raw processing activities. Similar indications are being experienced in other smelter operating areas such as Sulawesi and North Maluku. The local economic momentum that once emerged—among small traders, contractors, and drivers—is vulnerable to the depletion of reserves or a drop in global prices.

Advanced Strategy

Fiscal incentives and ease of licensing, which have traditionally focused on attracting new smelters, need to become more selective, both due to the aforementioned ‘hourglass’ risk and the narrowing of the state’s fiscal space. A different policy architecture is required, focusing on three main prerequisites.

First, fiscal and non-fiscal incentives should be specifically directed towards encouraging investment in midstream manufacturing and downstream products. This could be achieved through tiered incentives that are larger for facilities producing Precursor Cathode Active Material (pCAM), cathodes, and battery cells for nickel, with a similar approach for other mineral commodities once their smelting stage has matured.

Projects such as the planned US$350 million investment by Pure Battery Technologies for a pCAM facility in Batang, or the three High Pressure Acid Leach (HPAL) facilities by PT Vale Indonesia targeted for completion by the end of 2026, are early examples of this direction. However, these examples are still too few and remain too dependent on individual corporate initiatives.

Second, technology transfer must be made a binding requirement in every…