Indonesia’s nickel ore quota system, designed to prevent the supply gluts that crushed prices in 2023-2024, is having its intended effect. The 2026 quota of 240 million wet metric tonnes is sufficient for current smelting capacity, but delays in approval have left producers scrambling for ore feed.
NPI (nickel pig iron) production in Indonesia fell 8% month-on-month in May as some smaller smelters ran out of ore permits. Smelters that processed their entire allocated quota in April paused operations in May, waiting for new approvals that may take 4-8 weeks.
Philippine laterite ore exports have increased to fill some of the gap, but Philippine ore has lower nickel content (1.2-1.4% vs Indonesia’s 1.6-1.8%), requiring more ore per tonne of NPI. This raises production costs and narrows the NPI discount to LME.
The NPI discount to LME cash has narrowed to $2,200/t, compared to $3,000/t in Q1 2026. The narrowing discount reduces the incentive for stainless steel mills to switch from refined nickel to NPI, supporting refined nickel demand.
Indonesia’s quota management is structurally supportive for nickel prices through H2. The NPI discount narrowing means stainless steel mills will need to compete for LME-grade nickel, adding demand to the Class I market. Lock in H2 volumes now before the ore shortage becomes more acute in Q3.