Indonesia's nickel industry continues its rapid expansion, with NPI (nickel pig iron) output reaching an annualized 1.8 million tonnes of contained nickel in May. The 15% year-on-year growth is driven by new smelting capacity in the Sulawesi and Halmahera industrial parks. Total Indonesian nickel smelting capacity now exceeds 2 million tonnes per year of contained nickel.
The expansion is extending into HPAL capacity for nickel sulfate production. Two new HPAL plants are expected to reach commercial production in Q3 2026, adding an estimated 60,000t/year of nickel-in-MHP (mixed hydroxide precipitate) capacity. The additional MHP supply will feed Chinese precursor cathode active material (PCAM) producers for the lithium-ion battery supply chain.
The International Nickel Study Group (INSG) projects a global nickel surplus of approximately 150,000t in 2026. The surplus is entirely in Class 2 products (NPI and MHP), while Class 1 markets are roughly balanced. This structural oversupply of lower-grade nickel products acts as a price ceiling on the broader LME nickel contract.
The key uncertainty is Indonesian policy. The government has signaled potential export taxes on nickel intermediaries to encourage domestic downstream processing. If implemented, such taxes would raise costs for Chinese importers and potentially slow the pace of capacity additions. For now, no policy changes have been enacted.
The Indonesian supply overhang caps nickel at $18,000-18,500/mt. For stainless steel buyers, the NPI surplus means cost-competitive nickel units are available in the Class 2 market. For battery supply chain buyers, the new HPAL capacity will improve nickel sulfate availability in 2027. Avoid fixing at the upper end of the range ($18,000+) without a clear supply disruption catalyst. The risk-reward is neutral to bearish below $18,000.