A self-purge inside the world’s largest nickel player

**Akshara** (0:04)
In today's episode, we'll do one deep dive and cover another story for the day. First, we'll talk about the self-purge inside the world's largest nickel player. And then we'll talk about fishy business in the sardine market.
Welcome back to The Daily Brief by Zerodha, where we cut through the noise to help you understand what's actually happening in the most important stories from business and markets. I'm your host Akshara, and today is Thursday, 3rd September.
Coming to the first story.
Something is happening in Indonesia. The country has launched one of the most aggressive nationalization campaigns in recent memory, and the government has taken over nearly 6 million hectares of palm oil plantations, created a state-owned export monopoly for its biggest commodities, and collected billions of dollars in fines from companies it accuses of having looted the country's natural wealth. So in early 2026, Indonesia slashed its nickel ore mining quotas from 379 million tons to 250 million tons. Then it hiked royalties on low-grade nickel ore from 17% to 30% while introducing new taxes and licensing requirements on many other minerals. Now, Indonesia is the world's largest producer of palm oil and nickel, and among the top three producers of both tin and coal.
Such a large crackdown will inevitably move the global markets for these commodities, and this includes India, as we are heavily dependent on the country for palm oil, thermal coal and nickel. The response from the industry was immediate. Chinese firms which dominate Indonesia's nickel processing began scaling back production, and nickel prices on the London Metal Exchange surged past $17,900 per tonne. In a letter to Prabowo, the China Chamber of Commerce in Indonesia argued that their firms faced excessively stringent regulation and alleged extortion by authorities. So why is Indonesia going through all of this, and why now? And how much of this is reform? How much is revenue desperation? And how much is power consolidation? So all of this doesn't fully come out of the blue, but has some history behind it. Indonesia is one of the most commodity-rich countries in the world. But see, much like other developing nations, it has always had a singular frustration. The country kept exporting raw materials cheaply and importing finished goods at high prices. It enjoyed very little benefit of the profit that would arise out of value addition on its own raw materials. Now, this frustration existed for a reason. Until its independence in 1945, Indonesia was a colony of the Dutch who would only take raw materials for their own finished goods.
This was a common worry at the time among post-colonial countries, including India. So, Indonesia's founding president Sukarno undertook a large scale nationalization of Dutch-owned plantations and companies. But Indonesia's version of the struggle to localize this value addition became unusually intense. One big reason for this is the deep entanglement of the military. So, the roots go back to the 1970s oil crisis, which sent oil prices soaring. Indonesia's leading state oil company, Pertamina, which was headed by Lieutenant General Ibn Sudowo, reaped huge benefits with those prices. And those revenues were channelled into social welfare programs, but they were also used to fund further military interests and political patronage. In fact, generals often received special mining concessions and were promoted to leadership positions in state-owned firms. Eventually, this resource nationalism only got stronger. Indonesia forced foreign giants to divest 51% or more of their business to national entities, and in 2012, the Constitutional Court dissolved PP Migas, Indonesia's independent oil and gas regulator, ruling that it favored foreign companies.
This same impulse drove Indonesia's most famous recent act of resource nationalism, the Nickel export ban.
For years, Indonesia exported raw ore to be processed elsewhere, mostly in China, and then in 2014, it introduced a partial export ban on unprocessed minerals, meant to force companies to build processing infrastructure inside Indonesia.
Several Western mining MNCs pulled out, and this eventually turned into a full export ban in 2020
But another actor smelled an opportunity. Chinese state-backed firms building smelters and processing facilities in Indonesia at a pace no one had anticipated. Even when Indonesia imposed the full ban in 2020, an infrastructure buildout was already underway with Chinese capital. Indonesia's nickel exports then jumped 10-fold between 2017 and 2023, from approximately $3 billion to $33.5 billion.
By the first half of 2025, nickel exports reached $16.5 billion, overtaking coal as Indonesia's most valuable export. Indonesia's share of global processed nickel leapt from being negligible in 2013 to approximately 40 percent by 2024
Indonesia also became the largest producer of stainless steel, which needs nickel. Now, by most conventional measures, the nickel ban worked spectacularly. It was the most crucial first step towards Indonesia's own EV ambition. But the success came with a catch. Most of Indonesia's nickel refining capacity is now controlled by Chinese companies. Over $30 billion in investment flowed in, financed by state-owned Chinese banks and built alongside dedicated coal power plants. So the processing happens in Indonesia, but approximately 75% of the direct profits flow to foreign shareholders, while the environmental costs of deforestation, carbon-intensive smelting and toxic waste are borne locally. So Indonesia had climbed the value chain, but now finds itself overly dependent on a single foreign partner. And that has created a new pain point in China-Indonesia relations. But localization is only half the problem. Even where Indonesia has managed to bring much of the investment in-house, the money that should reach the state coffers from there simply doesn't. So one reason for that is that firms in Indonesia undertake a practice called transfer pricing. Imagine a company A is situated in Indonesia that sells nickel. It has an offshore subsidiary in a tax-friendly region like Singapore. Company B, which is located in China, wants to buy a unit of nickel at the market price of $100.