Indonesia, which supplied 61.6% of global nickel ore in 2024 and an estimated 63.4% in 2025, approved the reduced quota under its RKAB (Rencana Kerja dan Anggaran Biaya) system on February 10, 2026. The cut brings the annual mining allowance from 379 Mt to approximately 250-260 Mt, a reduction of roughly 120 million tonnes. (FACT: Fact.MR, SMM, Indonesian Ministry of Energy and Mineral Resources, February 2026)
The official rationale: support nickel prices, increase fiscal take through higher royalties, and tighten environmental compliance. The quota reduction is paired with a new progressive royalty regime introduced in early 2025 — nickel ore royalties rose from a flat 10% to a sliding 14-19% depending on benchmark prices. In September 2025, approximately 190 mining permits were suspended for non-compliance with the new RKAB requirements, which forced producers to pre-fund mine rehabilitation. (FACT: Indonesian government regulations, SMM, Fastmarkets)
The impact is already visible. LME nickel, which had fallen to roughly $14,400/t in December 2025, recovered to approximately $18,500-19,000/t by mid-May 2026 — a 30% rebound. (FACT: LME, Trading Economics) The January 6 spike of more than 10% in a single session was the largest daily gain since the March 2022 short squeeze, triggered by heavy Chinese buying on the quota news.
However, the market remains torn. The INSG projects a surplus of approximately 198,000 tonnes for 2025 and 260,000-288,000 tonnes for 2026, concentrated in Class 1 nickel (cathode and briquettes) as Chinese and Indonesian refined metal floods LME warehouses. LME inventories rose from 160,000 tonnes at end-2024 to approximately 250,000 tonnes by late 2025. (FACT: INSG, ING, Argus, LME) The quota cut affects ore supply — the raw material for NPI and MHP — not the refined metal that is accumulating in LME sheds. The question is whether lower ore availability will eventually translate into lower refined output, or whether stockpiles of intermediate materials will buffer the impact.
Macquarie Bank was the first major institution to flip its view, arguing in March 2026 that tighter Indonesian quotas, limonite ore shortages, and a tailings dam incident at Morowali could flip a previously expected 90,000 tonne surplus into an actual deficit. Macquarie sees a price floor around $17,000-18,000/t. (FACT: Macquarie Research, March 2026)
The Indonesian quota cut is a supply-side intervention in a market that was drowning in surplus. It will not eliminate the Class 1 surplus overnight — LME inventories at 250,000 tonnes provide a cushion. But it changes the trajectory. If the quota is enforced strictly — and the 190 permit suspensions in 2025 suggest Indonesia is serious — the ore shortage will eventually constrain NPI and MHP output, tightening the Class 2 market and supporting a floor under LME prices. The risk is now asymmetric to the upside. Monitor Indonesian ore shipments monthly; if they fall materially below the 2025 run rate, expect LME nickel to test $22,000/t.