Theme of the Day: Tightening supply supports nickel

Nickel prices remain supported after reports of additional output reductions in Indonesia, the world’s largest producer. According to Shanghai Metals Market, around 10% to 15% of high-grade nickel pig iron capacity at the Weda Bay Industrial Park is set to undergo rotational maintenance in the coming months. The report also noted that some NPI production used in stainless steel has already been reduced since Mar and Apr due to weaker ore availability and elevated costs, while shifting power allocation toward new aluminium projects has further tightened supply conditions. Indonesia has lowered nickel ore mining quotas this year in an effort to support prices, leading to raw material shortages and forcing cutbacks at local smelters. The country produces more than half of global nickel output, supported by significant Chinese investment. Indonesia has gone from 30% of global supply in 2020 to almost 70% in 2025 and 75% in 2026. Battery demand growth has been downgraded due to substitution trends. In summary, still too much planned supply, despite projected strong demand growth rates of 5.5% a year from 2024-2030, way higher than other base metals. However, after years of oversupply crushed nickel prices, the market may finally be entering a structurally tighter phase. Even the International Nickel Study Group now expects the market to shift into deficit in 2026. Industry consultant Wood Mackenzie outlines current price drivers: Sulphur is the story of Q2. The disruption to Middle East sulphur supply is leading to a shortfall in sulphuric acid which has hit HPAL producers hard (the main reagent for HPAL’s),. Multiple major operations are cutting output significantly, MHP spot prices are climbing, and cost inflation cannot easily be passed downstream. Supply tightness in intermediate products is real — and it is not resolved yet. The cost floor has moved. The price levels that defined the previous market floor no longer reflect production reality. Costs across the HPAL chain have risen materially when sulphur is sourced at current spot prices. The ceiling, meanwhile, is defined by the point at which western sulphide projects become economically attractive again — and that threshold is closer than it was a year ago. Watch Class 1 demand — it may be about to surprise. Indonesian NPI grades are declining, utilisation rates are well below nameplate capacity, and NPI supply could be tighter than the consensus expects. At least one major stainless steel producer has already increased its Class 1 nickel usage meaningfully. If others follow, the demand implications are significant. Indonesia's policy levers matter more than the supply/demand balance right now. Government policy changes are aimed at greater control to preserve resources and prices. Quota decisions, royalty frameworks, and government price preferences are the primary drivers of where this market goes next. The mid-year RKAB revision will be a critical data point. Industry participants and governments alike are watching closely. Indonesia has roughly two years. Western sulphide nickel is beginning to stir. From the latter part of this decade, sulphide supply from the West is expected to return to the market in volume. The window for Indonesia to shape the long-term structure of global nickel supply is finite — and the clock is running.