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The International Energy Agency (IEA) has called for urgent efforts to secure nickel supply chains in the face of growing political tensions, just days after researchers found 75% of Indonesia’s refining capacity has ties to China. 

Indonesia is the world’s largest producer of nickel, and by 2030 is forecast to account for nearly two-thirds of global supply, as well as 44% of refining capacity, IEA research suggests. 

The country already boasts vast reserves of the metal, a crucial component in lithium-ion battery and stainless steel production, and has rapidly grown its domestic refining capacity after imposing restrictions on nickel ore exports in 2020. 

In a report published this week, the IEA warns that if the supply of Indonesian refined nickel was disrupted, alternative sources would fall “significantly” below expected demand.  

In that scenario, it estimates that non-Indonesian producers would only be able to meet around half of global demand in five years’ time. 

“This emphasises that, even where the overall global balance is reasonably well supplied, critical mineral supply chains can be highly vulnerable to supply shocks, whether from extreme weather, trade disruptions or geopolitics,” it says. 

“This analysis highlights the urgency of strengthening and stepping up efforts to ensure the future security of supply for critical minerals.” 

Critical minerals have increasingly taken on strategic importance for western governments amid rising concerns over dependence on supply from China, especially as trade tensions – particularly with the US – continue to escalate.  

China has already introduced export restrictions on several metals. In December, Beijing announced a total ban on exports of gallium, germanium, antimony and graphite to the US, and said this month that licences would be required to export tungsten, bismuth and a handful of other materials with industrial uses. 

China’s refined nickel exports are far lower than Indonesia’s, but the IEA’s warnings follow a report from non-profit organisation C4ADS that finds Chinese companies exercise significant control over Indonesia’s nickel refining sector. 

C4ADS says the country’s refining capacity – which totalled around 8 million metric tons in 2023 – initially appears to be spread across 33 companies. 

“However, ownership tracing reveals there is significant concentration in foreign countries and substantial overlap in shareholders,” it says. 

“When ownership is traced to the second level, Chinese companies or shareholders control 61% of the refining capacity, while Indonesian companies or shareholders control just 13%. Further tracing uncovers that Chinese beneficial ownership exceeds 75%.” 

This involvement, which follows significant investment in the sector from Chinese banks, is often “masked behind layers of corporate entities registered in different countries”, it adds. 

This concentration of refined nickel supply “will have multiple long-term ramifications”, C4ADS says.  

“It will be challenging for other countries to meet domestic demand without access to Indonesian nickel,” it says. “China’s entrenched position in the industry makes it difficult for companies to establish a fully independent and secure supply chain outside of China.” 

The C4ADS report also says there are environmental and safety-related concerns around Indonesian nickel, which could be harder to assess if ownership structures are opaque. 

It says most of the country’s refining sector relies on coal-fired power plants, and cites several reports of lax workplace safety and dozens of deaths within processing facilities. 

“It is crucial to identify the key players, understand their influence on the supply chain, and assess their responsibility for environmental and worker conditions,” it says. 

The report adds that some of the Chinese-origin shareholders in Indonesia’s refining sector “have been associated with significant environmental and social issues”. 

A report published by McKinsey in December warned that “limited transparency into the origins of battery raw materials supply also poses broader ESG concerns and attention”.