Indonesia is entering a new phase of resource industrialization. Building on the success of the 2020 raw nickel ore export ban, which catalyzed billions in domestic processing investment and elevated Indonesia into a global nickel powerhouse, the government is now targeting rare earth elements (REEs) with a more centralized model. The establishment of a dedicated Mineral Industry Agency, coupled with a declared policy of full state control over rare earths, signals a move from using export bans as leverage to actively directing downstream value creation. Framed not only as economics but as sovereignty and defense policy, this strategy seeks to turn mineral endowment into long-term industrial capability and geopolitical influence.
What’s new is the degree of control and the intent. Unlike the nickel model that relied heavily on private capital and imported technology, the rare earth policy is explicitly state-led. Officials have stated that rare earth resources will be managed by the state, with private operators playing only tightly controlled roles. That framing elevates the sector to strategic status from the outset, consistent with assessments that rare earths sit at the nexus of clean energy, advanced electronics, and defense supply chains. It also underscores a broader ambition: to convert resource abundance into global leverage.
The roles within the mineral industry have been clearly defined to enhance efficiency and effectiveness. The Ministry of Energy and Mineral Resources (ESDM) is responsible for upstream stewardship, which includes critical tasks such as resource assessment, ensuring the availability of feedstock, and developing upstream policy. In contrast, the newly established Mineral Industry Agency focuses on downstream priorities. Its responsibilities encompass process development, creating product roadmaps, and managing strategic minerals, particularly those linked to defense applications. This division of labor is designed to streamline operations and boost value-added processing in the industry.
Building an end-to-end rare earth elements (REE) industry is a complex endeavor that involves several key challenges. One of the primary hurdles is the intricacy of processing. The conversion of monazite and other raw materials into high-purity rare earth oxides necessitates a multi-step approach, which includes crushing, leaching, solvent extraction, precipitation, and calcination. Each of these steps requires meticulous attention to consistency, impurity control, and reagent recycling, all of which have yet to be demonstrated at a commercial scale within Indonesia.
Another significant challenge is the management of naturally occurring radioactive materials (NORM). Monazite often contains thorium and, in some cases, uranium. Thus, handling these materials requires robust systems for waste encapsulation, ongoing monitoring, and long-term stewardship infrastructure. Given Indonesia’s history of mining-related environmental impacts, gaining social license to operate will depend heavily on the establishment of credible environmental protection measures.
In addition to processing and radioactivity management, securing sufficient capital and developing the necessary capabilities represent critical barriers to progress. Establishing REE processing plants is a capital-intensive undertaking that demands careful planning, permitting, and optimization. While a strong stance on state control may provide reassurance regarding national goals, it could restrict access to foreign investment and limit opportunities for partnerships that could introduce world-class technological processes.
Current initiatives and potential sources of rare earths in Indonesia face their own unique status and challenges. For instance, pilot recovery programs for tin tailings, which are rich in monazite, are already underway, yet they struggle with complex hydrometallurgical processes, radioactive waste management, and financing hurdles. Similarly, the recovery of scandium and trace REEs from nickel processing residues is still largely conceptual and site-specific, with limited volumes available and significant adaptations required for processes. Lastly, the exploration of ionic clays, which could provide valuable heavy rare earth elements (HREEs), remains largely uncharted. While these deposits hold high-value potential, they are tempered by challenges related to exploration, permitting, and environmental considerations.
The United States, European Union, Japan, and South Korea are actively seeking to diversify their supply of critical minerals, and Indonesia's policy direction is aligning well with these goals. This alignment sets the stage for the establishment of long-term supply and investment agreements that will focus on essential materials related to magnets and defense applications. Additionally, there is a potential for joint ventures with Indonesian state-owned enterprises, where foreign capital can be paired with local process intellectual property, environmental technology, and initiatives for workforce development.
To further support these efforts, structured offtakes are being considered, which would be indexed to transparent benchmarks and could incorporate price-support features to mitigate the risks associated with new plant developments. While the U.S. Geological Survey continues to classify Indonesia’s rare earth element reserves as “not available,” it does highlight significant reserves in other countries, such as China, Vietnam, Brazil, Australia, India, Russia, and the U.S. This lack of definitive data gives Indonesia a unique opportunity to shape its narrative through demonstration projects and a gradual increase in production.
On the geopolitical front, Indonesia’s assertive resource strategy has the potential to influence ASEAN leadership and regional approaches as outlined in the ASEAN Minerals Cooperation Action Plan. This framework could serve as a template for converting resource endowments into economic security and enhanced bargaining power. At the same time, Indonesia is balancing its relationship with China, which is a partner in Indonesia’s nickel development, while also tightening its own control over the rare earth value chain through licensing, quotas, and regulatory measures. Previous export restrictions, like the notable 2010 dispute that affected Japanese buyers, underscore the importance for Indonesia to establish an independent capabilities framework.
The concept of the “Indonesia Model” emerges from these dynamics. If successful, this model would prioritize a downstream-first approach within a state-directed framework that effectively leverages byproducts, promotes public research and development, and anchors offtakes in strategic sectors. Such a strategy could be emulated by other resource-rich nations, offering them greater autonomy, albeit at the expense of more complex geopolitical relations and potentially reduced market transparency.
Indonesia is retooling its mineral playbook for the REE era: from export bans to hands-on downstream control, from transactional investment to technology-centered institution-building, and from regional economic goals to explicit national security aims. The Mineral Industry Agency is the keystone in that strategy, tasked with converting byproduct advantages and early projects into an integrated, sovereign value chain.
Success will hinge on three things: importing and indigenizing world-class processing know-how; earning a durable social license through rigorous environmental and NORM management; and structuring partnerships that blend state control with enough private expertise and capital to scale. If Indonesia threads that needle, it could become a pivotal supplier in the magnet metals that underpin electrification and defense, reducing global concentration risks even as it creates a new center of policy leverage in Jakarta. Quest Metals is committed to supporting this transition with resilient sourcing strategies, transparent ESG standards, and collaborative R&D. As supply chains realign, we aim to help partners navigate risk, secure reliable materials, and build the downstream capacity that a balanced, diversified rare earths market requires.