Indo-Pacific Positioning: Indonesia, the Philippines, and Australia in the Critical Minerals Competition

Amahd Azzam, J.M. Lindstrom

Indonesia's nickel downstreaming demonstrates that governance and industrial policy matter more than resource endowment alone in the critical minerals competition. Indonesia used export restrictions to redirect value toward domestic processing and attract foreign investment, the Philippines has remained more constrained by stagnating output and ore-export dependence, and Australia has pursued a different model centered on strategic support, international partnerships, and sovereign processing capacity.

Indonesia has turned nickel into strategic leverage not simply because it has large reserves, but because it has used industrial policy to move from raw ore exports toward domestic processing. (Guberman et al., 2024) show that Indonesia reintroduced export restrictions on nickel ore in 2020 after an initial 2014 ban, and that the policy helped shift exports toward higher-value processed nickel products while increasing foreign investment in downstream capacity. (Guberman et al., 2024) argue that Indonesia's export ban was designed to strengthen downstream nickel production capacity and expand the country's role in critical applications such as stainless steel and lithium-ion batteries. The paper also notes that raw nickel exports essentially ceased while downstream exports surged, and that foreign investment, predominantly from China, increased after the ban. This makes Indonesia the clearest case in the region of a state using legal and industrial policy to convert mineral wealth into strategic leverage.

While Indonesia successfully leverages its regulatory framework to force industrial upgrades, other regional actors demonstrate the limitations of relying purely on geological endowments without matching state intervention. For instance, ("Philippines: Nickel Industry," 2025) reports that Philippine nickel ore production has been stagnant since peaking in the mid-2010s, largely due to stricter environmental regulations under the Duterte administration. Because its domestic processing capacity remains limited, the Philippines remains the world's top exporter of unprocessed nickel ore, proving that mineral abundance alone does not guarantee strategic leverage. Conversely, Australia has pursued a different model entirely, centering its national strategy on resilient supply chains, international partnerships, and sovereign processing capability. As outlined in the (Critical Minerals Strategy--2030, 2023), rather than deploying coercive export bans, Australia utilizes targeted state support to de-risk projects, attract private finance, and build enabling infrastructure, positioning itself as a transparent and market-driven alternative in the region.

The stagnation of the Philippines is one of many landmarks in the critical mineral global competition because it reflects a policy stuck in itself. Philippine nickel exports totaled near 45 million metric tonnes in 2024, with China taking nearly 80-90% of that nickel in recent years. The remainder goes to Indonesia, which holds some of the largest nickel processing plants in Southeast Asia; a large number of which are owned by Chinese firms, and a great portion of which is exported to China. The result is even the remainder that is not sent directly to China ends up there regardless. Smaller

volumes are transported instead to Japan and South Korea, though in much less significant quantities. Chinese nickel is made up by nearly 90% Philippine nickel ore imports, as such the relationship between the nations is not China, with numerous options, taking from one more nation to diversify interests. Instead, it is China dependent upon the Philippine nickel stores, regardless of where the smelting and processing of nickel takes place; Indonesia or China. Such export power means both that the Philippines holds influence over China and that China has few alternatives to retain its required nickel for processing and thereby profit. Nations fundamentally need critical minerals, hence their title of critical, nonetheless China's chokehold on processing and smelting depends upon the source; all paths move up or down the supply chain somewhere, and the closer to the source, the more intensive the influence. Indonesia captures the midstream value itself through a ban-and-attract-investment style, combining Chinese investment and Philippine supply. Indonesia serves as an arm of the Chinese in that 90% of its nickel smelters are Chinese-firm-owned. Such, China's share of Philippine exports fell from roughly 78% to roughly 66% in 2025, but in large part only because Indonesian export to China took over the critical processing step. As such, China is effectively outsourcing its processing to Indonesian firms, which are in turn absorbing the risk of the processes, while Chinese companies profit. China outsources therefore without the risk the US faced of outsourcing to China in the infamous case of Apple. China still owns the processing plants and work without the risk of losing influence, as such the Indonesian workers cannot circumvent China, and nor would they, as it makes up for a major buyer. China's share of Philippine exports fell from in 2025, but only because Indonesia's share rose as Indonesian smelters ran short of domestic ore, so the ore is being pulled deeper into the same Chinese-financed processing ecosystem rather than diversifying away from it.

Additionally a Philippine Senate bill passed in February of 2025 which proposed phasing in a ban on exporting unprocessed nickel ore, to retain value within the nation and increase the value-adding steps of processing domestically. In June 2025 a bicameral conference committee removed the export ban, out of concern from industry groups who feared the policy would instead put their companies out of business, not bolster economic value-addition. As of 2026, the Philippine government policy is more akin to Australia's model of permit approvals, fiscal incentives, simplified procedures, and lastly reforms of the mining fiscal regime, in part involving the consent of Indigenous peoples and environmental regulations. Additionally, the government saw a 10% minimum share in gross revenues, and incentives for downstream processing. The ban was replaced instead with a separate system of investment to encourage processing through positive reinforcement rather than negative punishment. The ban is not dead full-stop in theory, merely in practice, nonetheless it has been tried and shelved once, thus displaying a disproportionate lack of interest.

The Philippines hold a role as a nation with raw material influence which is seeing increased attempts at governmentally-sponsored downstreaming and processing systems. Australia has taken an approach to similarly establish national control over domestic resources. Export Finance Australia, a major critical minerals facility in Australia, saw funding of $2 billion in 2023, followed by an expansion to $5 billion in February 2026; October of 2023 also saw Australia invest in processing and smelting with an allocation of $6 billion. Not a ban, such as the attempt in the Philippines, but instead a system of investment; the same kind of investment China conducts in other

nations. In short, nations which invest in themselves see retained power, as opposed to those which require funding from China, and whose markets are slowly consumed by the Chinese critical mineral machine. The National Reconstruction Fund of Australia provided $15 billion to diversify the economy through investments, namely renewables and defense, as they were seen as priorities for the nation; in August of 2025 it took a direct equity stake in Liontown, with a $50 million investment in the lithium producer. The resources Australia is oriented around are largely antimony, gallium and rare earth elements, as well as the aforementioned lithium; each mineral seeing it's own unique domestic investment. The 2026 budget holds an additionally $1 billion stake for the Bonye Island Aluminum Smelter, which was funded with an additional $7.5 billion of private investment; Whyalla Steelworks saw $222.6 million, and additionally millions went to stockpiling and strategic reserves. The 2025 US-Australia bilateral framework provided more than double the amount by April 2026, financing at least $1 billion from each government, including $2.2 billion specifically from the US.

In 2023, nine loans had been issued across all Australian funds. Now there are 81 critical mineral projects with a value of $30-40 billion. Such investment provides exactly the international insulation from external investment and leveraging which directly impacted nations such as Indonesia. This isn't merely extraction, like in Indonesia either, as Iluka Resources received a $1.65 billion loan (increased from an initial $1.25 billion in December 2024) from the Critical Minerals Facility to establish a processing plant for rare earth mineral sands in Eneabba. A graphite mine and processing plant received nearly $200 million- as well as a separate graphite company, EcoGraf, receiving $40 million for a battery anode plant at Kwinana. In short, Australia is seeing some of the largest investments in critical minerals in the world, as a Western power, insulated from the influence of external nations, such as China in nations like Indonesia. Indonesia boosted nickel exports, as Chinese companies established refineries, seeing massive investment of production capacity, while Australia by contrast has weaker output. Australia focuses less therefore on the short-term output and quick turnaround investment strategies and instead works primarily on the expansion of domestic infrastructure to add value downstream at a later date. The expansion in Australia is seen as a strategic government course of preservation, not as a corporate endeavor; despite the innate profitability of the investments and resources. Australia only exports 45,000 tonnes of nickel, as of 2025, while Indonesia produces 2.6 million, and the Philippines' 270,000. Nonetheless, due to allied-governments and nations, the largest single increase in Australian mineral financing was tied to diplomacy rather than pure domestic interest.

The division between the nations is then rather clear; Indonesia serves as a Chinese stronghold of nickel processing, while attempts have been made to create a safer processing system, nonetheless, production continues at a breakneck pace, as investment flows in from Chinese firms. The Philippines seek unique independence and control within the processing of the nickel domestically, for domestic purposes, while Australia seeks to aid it's allies in a domestic investment program, which in turn secures critical minerals for key allies, such as the United States. The expansion of $2 billion in investment of 2026 trailed a meeting of the Australia-US Taskforce on Critical Minerals, as well as the US-Australia Framework for Securing Supply in the Mining and Processing Critical Minerals and Rare Earths, by Albanese and Trump, as of March 2026.

The capital architecture driving Indo-Pacific mineral processing reinforces distinct governance tracks. In Indonesia, the export ban catalyzed over $30 billion in foreign direct investment between 2019 and 2023, funding more than 30 nickel smelters primarily concentrated in hubs like the Indonesia Morowali Industrial Park and Weda Bay Industrial Park (Phoumin, 2025). However, this growth relied heavily on Chinese capital, which quickly established dominant positions in processing infrastructure. To counter this overreliance and avoid strategic vulnerability, the Indonesian government actively seeks to diversify its partnerships. The Prabowo administration has accelerated diplomatic efforts to deepen ties with the United States, South Korea, Japan, and European nations (Phoumin, 2025). This includes lobbying Washington for a critical minerals sectoral agreement to allow Indonesian minerals to qualify for subsidies under the U.S. Inflation Reduction Act, building on a November 2023 memorandum of understanding (Phoumin, 2025). However, Western integration remains constrained by strict environmental, social, and governance (ESG) benchmarks, which contrast with the less stringent compliance demands of Chinese financiers.

Sovereign leverage depends on a state's institutional capacity to transition from basic mineral processing to full-scale technological integration. The Ministry of Investment/BKPM records that Indonesia's processed nickel export value surged exponentially following the raw ore ban, representing a deliberate structural transformation toward economic sovereignty (Rahayu Edarsasi, 2025). To capture greater value, the government established the state-owned Indonesia Battery Corporation (IBC) in 2021 to oversee an integrated electric vehicle (EV) battery supply chain, targeting a domestic production of nearly 944,000 EVs by 2030 (Consultores & Kolibri, 2025; Phoumin, 2025). To achieve these targets and de-risk the massive capital required, reports by (Consultores & Kolibri, 2025) recommend deploying innovative financing frameworks, such as Special Purpose Vehicles (SPVs) and advance purchase agreements, to secure global liquidity. Nevertheless, domestic regulatory enforcement remains uneven. Domestic critics point out that fiscal incentives like tax holidays have disproportionately benefited foreign-owned smelters, while local mining operations continue to face substantial environmental degradation and regulatory capacity deficits (Rahayu Edarsasi, 2025).

Ultimately, this regional comparative picture reveals a fundamental vulnerability in Western supply-chain strategy. While Western policymakers view critical mineral security primarily through the lens of supply diversification, they frequently overlook how asymmetric financial and regulatory frameworks dictate actual control. Indonesia's active desire to diversify away from Chinese capital and align with Western markets is repeatedly stymied by rigid Western ESG benchmarks that lack accompanying capital mechanisms or flexible trade agreements. By demanding strict compliance without providing competitive co-investment or market access, the West inadvertently locks resource-rich states back into Beijing's financial embrace. Consequently, unless Western strategy pairs ESG demands with pragmatic financing and structural integration, China's chokepoint control over midstream processing will remain unbreakable, rendering allied diversification efforts largely ineffective despite the vast mineral

Notes & References