The Butterfly Effect: Vulnerability in Indonesia's Nickel Supply Chain

Figure 1: Spatial concentration of Indonesia's nickel supply chain showing extraction areas, processing hubs (IMIP and IWIP), dedicated export jetties, and the primary maritime shipping corridor through the Strait of Malacca.

(Source: Compiled by the author; based on data from CSIS, USGS Mineral Commodity Summaries, and C4ADS spatial infrastructure analysis.)

The heat of an explosion cannot be written accurately. The intensity of a sound felt more than heard, the walls of fire which engulfed the furnace they were born from, the workers whose lives were altered or lost as a result. As the smoke wafted away, workers returned hours later to resume their work, despite burns from steam and their twenty-one now-deceased colleagues. It would only be days later that the surviving workers would protest. The date is December 2023, the place is Indonesia, the furnace explosion is the responsibility of PT Indonesia Tsingshan Stainless Steel, based in the Morowali Industrial Park in Central Sulawesi province. More recently, however, there was a landslide, also in Morowali, taking the life of one more worker in March 2025.

The repetition of actions is not the result of confirmation bias so much as pattern recognition. If an individual continually falls ill, one must stop blaming fate for symptoms and begin questioning the cause instead: the environment. Indonesia suffers uniquely from a manifestation of the resource curse; its surplus of nickel creates not corruption, but instead a second, worse, soft underbelly.

Indonesia's nickel supply chain does not exhibit vulnerability through production shortage or trade imbalance, but through extreme spatial compression of industrial infrastructure. As shown in Figure 1, extraction sites distributed across Sulawesi and Halmahera are not directly linked to diversified export systems. Instead, they are funneled into two highly concentrated processing and export complexes: the Indonesia Morowali Industrial Park (IMIP) and the Indonesia Weda Bay Industrial Park (IWIP), which CSIS identifies1 as the dominant physical gateways for battery-grade nickel output, corroborated by USGS mineral data2.

This spatial structure produces a form of systemic exposure that is not visible in conventional trade statistics. Export data typically reflects national-level flows between Indonesia and importing states, creating the impression of a distributed and resilient supply network. However, peer-reviewed research on Indonesia's nickel enclaves3 confirms that multiple independent mining operations ultimately depend on a very small number of processing hubs and dedicated export jetties, a pattern also documented by CSIS4. This compression of material flow into a limited set of physical nodes creates a structural bottleneck in the supply chain.

Figure 1 demonstrates that IMIP and IWIP operate as integrated extraction-to-export systems rather than isolated industrial sites. Ore extracted from surrounding mining concessions is transported into these industrial parks, where it is processed through large-scale smelting and refining infrastructure. The output is then exported through dedicated industrial jetties directly connected to the processing zones. These jetties are not part of diversified public port systems; spatial analysis of port infrastructure5 confirms they function as single-purpose industrial export interfaces, tightly coupled to internal production processes, with port traffic at IWIP alone increasing sharply over the past four years.

The critical vulnerability emerges from this coupling between processing capacity and export functionality. Because both IMIP and IWIP rely on a limited number of export jetties directly attached to processing facilities, disruption at either node has immediate system-wide consequences. Such disruptions may arise from operational failure and labour disruptions, as seen in the fatal December 2023 furnace explosion at IMIP, or extreme weather and geopolitical pressure affecting industrial operations. Importantly, these risks do not need to occur simultaneously; failure at a single node is sufficient to disrupt a significant share of Indonesia's processed nickel exports, illustrated by the March 2025 landslide at PT QMB New Energy Materials, which analysts estimated could delay global EV production targets.

This spatial concentration is reinforced at the maritime level. Once exported, shipments from both industrial complexes converge into a shared regional shipping network that passes through the Strait of Malacca, which CSIS identifies6 as one of the world's most strategically significant maritime chokepoints, a finding consistent with UNCTAD's Review of Maritime Transport7.

The implication of this structure is that resilience assessments based on national production capacity or trade diversification significantly underestimate systemic risk. While Indonesia may appear to have multiple mining regions and diverse international buyers, the actual physical movement of material is dependent on a small number of infrastructure nodes. These nodes are shared across multiple global supply chains, meaning that downstream industries, particularly electric vehicle and battery manufacturers, are indirectly exposed to localized disruptions within Indonesia's industrial zones, as documented by the IEA's Global Critical Minerals Outlook8 and USGS mineral resource data9.

On December 24th, 2023, a furnace, while under maintenance at the PT Indonesia Tsingshan Stainless Steel factory, exploded inside IMIP. The blast was attributed to residual explosive liquid, which, once ignited, spread quickly to nearby oxygen cylinders, leading to the death of 21 workers, 13 of whom were Indonesian nationals and 8 Chinese nationals. Hospital triage records showed over 26% of treated patients sustained second-degree burns, while the police ordered ITSS to suspend operations10 pending investigation. Approximately 100 workers protested at the now charred complex three days following the incident, demanding a full shutdown of all IMIP smelting operations until a thorough safety review had been completed. This suspension, however, was only partial and as short-lived as the flames of the explosion. Production throughout the wider complex continued, despite such risk and disruption.

A day after these protests, four days following the ITSS explosion, a fire in a different facility, a Gunbuster Nickel Indonesia smelter, within the same industrial park, raged. Two days following that incident, on December 28th, a mine excavation landslide left two workers dead at a third IMIP tenant; Sumber Permata Mineral.

This is more than coincidence, more than misfortune in high frequency; it serves as an indicator of the largest liability of the nickel heart of the world. In March 2025, the PT QMB New Energy Materials landslide began another chain of events. The landslide itself struck a tailings storage area at the QMB facility on March 14th, 2025, killing two workers, with a third labeled missing. The collapse forced a near-complete shuttering of operations, while nearby nickel producers reduced their output as well; they declined to be publicly identified. The incident site accounted for approximately 15% of Indonesia's nickel output, and the immediate production halt sent shockwaves throughout the EV battery manufacturers dependent on Indonesian supply. Insiders indicated QMB would likely see reduced output, at the very least, through April 2025, resulting from ongoing government investigation; the plant had previously shipped over 25,000 tonnes of nickel in Q1 alone, prior to the incident.

11 months later, a recurrence of events. The same QMB tailings area faced another landslide; thus prompting Indonesia's environment minister to announce a potential permit revocation. The suspension at QMB was projected to last up to three months; an additional three HPAL joint-venture plants at IMIP correspondingly halting production under this operational review. The four suspended facilities thus collectively account for 30% of Indonesia's HPAL processing capacity; the infrastructure, failing twice under the same pressures, posits natural concern for the vulnerability and risk-management of the world's, particularly Indonesia's, nickel security.

Control of chokepoints in the modern age is a critical path to power, one China has sought time and again to find and exploit. This is true in the nickel production and processing of Indonesia as well. As such, it is this vulnerability which has both a chain of events following it, that of supply shocks after incidents, and preceding it, that of Chinese influence. IMIP's ownership is controlled through Shanghai Decent with a 46.55% stake in PT Sulawesi Mining Investment11; the entity holding IMIP, with China-ASEAN Investment Corporation Fund holding another 24%; the financing for IMIP is provided by the Bank of China and China EXIM Bank. The processing infrastructure that constitutes this most vulnerable point of failure in Indonesia's nickel supply chain is majority Chinese-owned and Chinese-financed. CATL, GEM, and Tsingshan, which thus created QMB, are not investors that happen to fund IMIP; rather, they are the backbone of the global EV battery supply chain; as such, their operational decisions inside the IMIP directly govern what reaches Western manufacturers. For US and allied EV producers, this is not simply the market acting as usual; it is an equal vulnerability as the fires are in the factories therein in this Chinese-IMIP relationship, an exposure upon the IRA critical minerals sourcing rules which were designed to reduce but have not, as of yet, been resolved. Battery-grade nickel processed at IMIP flows through Chinese-controlled offtake agreements toward Chinese battery manufacturers, and it is then through that vassal into global supply chains. A disruption at IMIP constrains Indonesian exports, but it also constrains the processing nodes on which global battery-grade nickel supply depends, while no non-Chinese equivalent HPAL processing exists. Disruption without alternatives is known by another name, leverage, and it is this leverage that is fundamentally held to a chokepoint affecting the entire world as green energy expands. Indonesia's own leverage is more precarious than its production seems to suggest; Western buyers accelerating through Philippine nickel, recycled feedstock investment or the shift toward LFP battery chemistries12, and thus reducing NMC nickel demand, Jakarta's leverage wanes. The export downstreaming policy that brought IMIP into existence was designed to capture value from nickel, and yet it has captured risk through that value by imposing leverage on both sides of the supply chain.

Leverage is mitigated not by ignorance but by action; as such, policy actions must be enacted to protect from exposure resulting from the structural analysis. Firstly, Indonesia should condition new HPAL processing licenses on mandatory offtake and export-node diversification requirements, given that the present processing structure allows multiple independent mining operations on the same processing hub and export interface. Licensing reform requiring new entrants to demonstrate diversified offtake agreements and independent export infrastructure would reduce concentration risk without requiring divestment from present operations.

Secondly, US and allied critical mineral strategy should formally classify Indonesian nickel processing as a point of failure to redress the leverage. This means investment in stockpiling mechanisms for battery-grade nickel intermediates, as well as accelerated development of HPAL capacity separate from IMIP, and treatment of Indonesian supply disruption as a scenario requiring a hedging posture as opposed to a residual risk. The IRA's critical minerals provisions13 create the financing structure supporting this notion; however, the strategic intent has not been acted upon practically yet.

Lastly, independent third-party safety audits at IMIP and IWIP should be mandated as a condition of Western offtake and financing relationships; the fatality rate, although not justifiable, is not isolated from the disruption risk, and each incident which produces a production halt is also a worker protection failure as well as a supply chain event. Reducing these net harms in exchange for continued trade is a logical negotiation, so audits which treat safety compliance as a supply chain variable align both buyer incentives and worker protections.

As the protesters dispersed and the smoke burnt away from the sky, the risk that has been established as a fact of life must be reassessed. In the ruins of the past incident lie the roots of the next, be it faulty furnaces or unstable mining ground; however, each gains a propensity to be higher risk. As such, the shockwaves felt not only from a landslide physically through IMIP, but also economically throughout the world; such risks cannot be justified while alternatives exist and while safeguards are still able to be implemented.

Notes & References