Nickel Steadies Above $16,600 as Indonesia Ore Quota Cuts Offset Record Inventories

Nickel is a market of two halves, and neither side trusts the other's story. On one side: Indonesia, which now supplies roughly 68% of the world's mined nickel, has cut 2026 ore production quotas by 34%, reducing allowable output from 379 million wet metric tonnes in 2025 to approximately 250-270 million tonnes. The government's stated goal is to curb the oversupply that has crushed nickel prices from their 2022 peak above $30,000/t to the mid-teens, and to force the industry toward higher-value processing. Weda Bay Nickel, a major producer, saw its 2026 ore quota slashed from 42 million tonnes actually mined in 2025 to just 12 million tonnes, forcing the operation into care and maintenance in mid-May. That is a supply disruption at scale — a single mine losing 30 million tonnes of annual ore output.

On the other side: record inventories. Combined LME and SHFE nickel stocks reached 468,600 tonnes in mid-2026, the largest overhang since 2015. LME stocks alone built for nine consecutive months before leveling off near 275,000 tonnes. SHFE stocks have nearly doubled since the start of 2026. This is not metal that is going anywhere fast — it represents roughly six weeks of global nickel consumption, an enormous buffer by base metal standards. Every rally attempt in 2026 has met selling pressure from inventory holders looking to monetize metal that has been sitting in warehouses for months.

The tension between the supply-discipline narrative and the inventory-overhang reality is reflected in analyst forecasts. The International Nickel Study Group (INSG) originally projected a 261,000-tonne surplus for 2026. By April, it had revised to a 32,000-tonne deficit — a swing of nearly 300,000 tonnes in six months. Goldman Sachs raised its 2026 average forecast to $18,500/t, arguing the Indonesian quota cuts will accelerate the drawdown of visible stocks. Macquarie raised its forecast to $17,750/t and cut its surplus estimate to 89,000 tonnes. Bernstein lifted its target to $17,357/t. But BMI (Fitch Solutions) remains at $15,800/t, and ING emphasizes that 'the huge 2025 surplus plus record inventories take years to clear.'

The battery demand story — long the bull case for nickel — has underperformed expectations. SMM data shows battery-related nickel consumption at approximately 470,000 tonnes in 2026, up just 10,000 tonnes from 2025. The culprit is the rise of lithium iron phosphate (LFP) battery chemistry, which uses no nickel or cobalt and has captured a dominant share of the Chinese EV market. Plug-in hybrids, which use smaller batteries, are also outperforming full battery electric vehicles in growth rates. Benchmark Minerals still projects battery nickel demand tripling to 1.5 million tonnes by 2030, but the near-term trajectory is flatter than the market priced in during the 2022-2023 bull cycle.

The stainless steel sector — still more than 60% of nickel demand — is growing at a modest 3-4% annually. That is steady but not transformational. Stainless mills in China and Indonesia are expanding capacity, but they are absorbing mostly nickel pig iron (NPI) and ferronickel, not the Class 1 refined nickel that trades on the LME. The LME contract reflects Class 1 metal — briquettes, cathodes, pellets — and that market is structurally oversupplied because new Indonesian production, especially from high-pressure acid leach (HPAL) plants, is generating mixed hydroxide precipitate (MHP) and nickel sulfate for batteries, not Class 1 cathode. The Class 1 surplus and the Class 2 tightness can coexist — and they are.

Indonesia's HPAL capacity growth is the wildcard. HPAL plants convert laterite ore into MHP, which can be further processed into nickel sulfate for EV batteries. Indonesia now operates multiple HPAL facilities, and capacity is expanding rapidly. But HPAL is energy-intensive and dependent on sulfuric acid — the same sulfuric acid that is in short supply due to Gulf shipping disruptions. The Strait of Hormuz conflict has tightened sulfur markets, raised acid costs, and increased the cost of Indonesian MHP production. This feeds through to higher nickel sulfate prices in China even as LME nickel remains rangebound. The EV battery supply chain is tightening at the intermediate stage while the refined LME market stays loose.

For the rest of 2026, nickel's price path depends on whether the Indonesian ore quota cuts overcome the inventory overhang. If Weda Bay's shutdown and broader quota discipline reduce NPI output by 100,000-200,000 tonnes of nickel content, the Class 2 market will tighten further, and some of that tightness will leak into Class 1 as stainless mills bid for alternative feed. If quota enforcement proves less stringent than announced — and Indonesian policy has a history of flexibility — the inventory overhang will reassert itself and prices will drift back toward $15,500/t. The smart money is watching Indonesian ore shipments and HPAL acid costs, not LME warehouse reports.