A critical mineral match for Australia and Indonesia
Robert Walker
Hilman Palaon
Downstreaming diplomacy and shared interests to secure the global supply of nickel and lithium should be the focus for Anthony Albanese’s trip to Jakarta.
Published 14 May 2025
The freshly re-elected Australian Prime Minister Anthony Albanese is wasting no time, making the customary first overseas visit to Indonesia on Wednesday
only one day after swearing in a new cabinet. There will be much to talk about, but critical minerals will likely be a priority for the Indonesian side.
On a call with President Prabowo Subianto, Albanese
proudly stated the relationship between “Australia and Indonesia is an unbreakable bond” and on Australian television
declared “We have no more important relationship than Indonesia just to our north”.
Critical mineral cooperation is fast becoming central to how Indonesia imagines future economic engagement between the two countries.
Indonesia wishes to explore critical mineral collaboration with Australia – an ambition Australia needs to take seriously
Indonesia has rapidly become the
world’s largest supplier of nickel after adopting a surprisingly successful mix of industrial and trade policies to expand processing capacity and battery manufacturing, dubbed “downstreaming”. This downstreaming is now envisaged for other critical minerals and non-mineral commodities and seen as a pathway for Indonesia to reach
high income status by 2045.
This is why Indonesia wishes to explore critical mineral collaboration with Australia – and an ambition Australia needs to take seriously.
A receptive Albanese government established a
collaboration mechanism in 2023 with the aim of “mapping EV supply chains, joint scientific and research studies, as well as fostering new business-to-business links”. The focus is primarily on critical mineral processing and battery manufacturing.
Australia already devoted A$2 million to funding
joint research activities into transport decarbonisation and battery recycling. Indonesia, meantime, signed similar cooperation agreements with the
Western Australian and
Northern Territory state governments.
Nickel sulfate (SeongJoon Cho/Bloomberg via Getty Images)
The Indonesian Ministry of Foreign Affairs recently hosted a closed-door seminar, inviting speakers from the National Economic Council, a nickel company, Indonesian academia, and the Lowy Institute, to explore further critical mineral collaboration with Australia. Indonesia is serious about building opportunities with Australia and recognises that a “greener”
Indonesian nickel industry will be a necessary step. This is welcome given growing concerns about the
industry’s environmental, social and governance standards.
Indonesia sees Australia’s status as the
largest producer of lithium and Indonesia as the largest producer of nickel as a collaboration opportunity. Both minerals are crucial inputs for certain EV batteries.
There is merit in this assessment. Several ideas have already been explored, such as a division of production between the two countries, where certain stages of mineral processing and battery manufacturing take place in each country.
But our research into
Indonesia’s nickel downstreaming suggests cooperation may be harder than it first appears, although progress is possible in some narrow areas.
Indonesian firms could acquire stakes in Australian lithium projects alongside lithium refining firms, much like the joint venture model in Indonesia’s nickel industry.
Several essential factors led to Indonesia’s success in nickel processing: Technology, financing, skilled labour, large mineral reserves, the right policy environment, and abundant energy. Each pillar must be present if a critical mineral processing industry is to develop. In the case of Indonesian nickel, China provided the first three while Indonesia provided the latter three.
Australia has a similar comparative advantage to Indonesia, able to provide mineral reserves, favourable policy, and abundant energy. But Australia
lacks some skilled labour. It also does not have
cost-effective technology to compete with China, with projects reliant on state support because Australia only received US$2 billion in foreign investment for new critical mineral projects in 2023–24. Indonesia received between US$2–$10 billion in seven out of the last ten years of downstreaming. So Australia will not be able to play the role of China in further Indonesian downstreaming efforts.
Indonesia also cannot provide processing technology or skilled labour. But Indonesia has finance potential.
Indonesian acquisitions of Australian coal and copper mines are an example. Indonesian firms have spent A$3 billion
acquiring coal mining projects in Australia since 2016. Indonesian firms could acquire stakes in Australian lithium projects alongside lithium refining firms, much like the joint venture model in Indonesia’s nickel industry.
One stumbling block is low commodity prices. A major lithium refiner in Australia already
announced production declines last year. Investments look risky but could be cheaper given this outlook.
Australia would also need to consider the risk of foreign investments from Indonesian firms involved in Chinese critical mineral supply chains.
As Albanese travels to Indonesia, critical mineral collaboration will be high on the Indonesian economic agenda. Australia needs to temper expectations where necessary but lithium ambitions may be a path forward.
Downstreaming diplomacy and shared interests to secure the global supply of nickel and lithium should be the focus for Anthony Albanese’s trip to Jakarta.
www.lowyinstitute.org
