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LONDON: Indonesia has emerged as the world’s dominant producer of nickel over the last 10 years.

Mined production last year was 771,000 tonnes, twice as much as the world’s second largest producer the Philippines and accounting for almost a third of global output, according to the International Nickel Study Group (INSG).

It is only going to grow further as investment, particularly from China, floods into Indonesia’s nickel sector.

National output could exceed a million tonnes this year and, according to Macquarie Commodity Strategy consultant Jim Lennon, will reach more than 2.5 million tonnes by the end of the decade, at which point it will have exceeded last year’s global production.

This Indonesian nickel boom, which has already morphed into a stainless steel boom and may soon become a battery-materials boom, is the result of a ban on the export of unprocessed ore.

It has been a startlingly successful policy of resource nationalism and one that other mineral producing nations will have noted. It is also illegal, according to the European Union, which is escalating a trade dispute at the World Trade Organization (WTO).

Indonesia has vowed it is “ready to fight” the challenge in what is shaping up to be a test-case of a country’s rights over its own resources. However, on the ground Indonesia has already won.

Indonesia’s nickel sector at the turn of the century comprised just two operators - state-owned Antam and what is now PT Vale - producing around 200,000 tonnes per year in the form of matte and ferronickel.

The first catalyst for the current production bonanza had nothing to do with Indonesian resource policy.

Rather, the price boom of the mid 2000s, culminating in a London Metal Exchange peak of $51,800 per tonne in 2007, led Chinese stainless steel mills to embrace a lower-cost process of using nickel ore to produce nickel pig iron (NPI) which could be fed into the stainless melt.

Indonesia quickly emerged as the primary supplier of that ore, with exports to China rising from just 161,000 tonnes bulk weight in 2006 to 41 million tonnes in 2014.

Which is when the government first imposed its ban on the export of unprocessed minerals, particularly nickel. The export window opened a little in 2017 but firmly shut again last year.

The ban was explicitly intended to force nickel ore miners to invest in value-add processing. The impact, as Macquarie notes, has been “profound”. The first investment wave came as Chinese NPI operators offshored to Indonesia, which is now a larger producer of nickel in this form than China itself. China’s Tsingshan led the second wave, building out new stainless steel capacity fed by the new NPI furnaces.

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