Nickel Stabilizes at $16,600 After June's 14% Plunge — Indonesia's July Quota Decision Holds the Key

Nickel prices have stabilized around $16,655 per metric ton on the LME after a turbulent first half that saw the metal surge from $14,000 in January to nearly $20,000 in May, only to plunge 14% in June as a hawkish Federal Reserve and easing geopolitical premiums triggered a broad sell-off in industrial metals. Year-to-date, nickel is still up 9%, but the headline masks extraordinary intra-year volatility that has made procurement planning exceptionally difficult.

The story of nickel in 2026 is the collision of a massive structural surplus with a series of policy-driven supply constraints emanating from Indonesia — the country that produces over 50% of the world's mined nickel and an even larger share of nickel intermediates. The surplus, estimated at 200,000-300,000 tonnes of contained nickel, has not disappeared. But Indonesia's government has made it clear through a sequence of policy interventions that it intends to manage supply to support prices, shifting from an "expand at all costs" posture to "control the chain to raise prices."

The most consequential of these interventions is the RKAB mining quota system. Indonesia slashed the 2026 quota to 270 million wet metric tonnes, down from 379 million in 2025 — a 29% cut. The impact was immediate: the Weda Bay Nickel (WBN) project, the world's largest single nickel mine, exhausted its quota by May and was forced into production cuts and partial shutdowns. For a market that had been pricing perpetual surplus, the sudden removal of WBN output was a shock that sent LME nickel to $20,000.

July is the critical month. Indonesia's mid-year supplementary quota application window runs from July 1 through July 31. The government has signaled that additional quotas will favor integrated miners with domestic smelting capacity — companies that process ore into nickel pig iron (NPI), matte, or mixed hydroxide precipitate (MHP) within Indonesia. This bias toward downstream processing is consistent with Indonesia's long-term strategy of building a domestic battery supply chain, but it means that standalone miners shipping raw ore will receive less — or no — additional quota. The outcome of the July quota revision will determine whether the H2 nickel market is genuinely tight (if quotas are stingy) or returns to surplus (if quotas are generous).

The policy complexity goes beyond quotas. Indonesia's new HPM pricing formula, effective April 15, 2026, incorporates associated elements like iron, cobalt, and chromium into the benchmark price calculation for the first time. The goal is to capture value from co-products that were previously given away for free, raising the effective cost of nickel ore and intermediates. Domestic smelters have pushed back hard, arguing that the HPM formula squeezes margins that are already under pressure from elevated sulfur and energy costs. The tension between Jakarta's price-support ambitions and smelter profitability creates a policy uncertainty premium that SMM analysts describe as "game-like" — tight one month, loose the next — and it was a core driver of nickel's H1 volatility.

Sulfur prices have been a wildcard. MHP production via high-pressure acid leaching (HPAL) consumes roughly 10 tonnes of sulfur per tonne of contained nickel. When sulfur prices spiked to $1,300 per metric ton CIF Indonesia during the peak of Middle East tensions, MHP production costs surged, and Huayou Cobalt's Huafei project cut some production lines in May. The US-Iran ceasefire discussions have since eased sulfur prices, but the supply chain remains vulnerable to any renewed disruption in the Strait of Hormuz.

The macro backdrop has turned less supportive. New Federal Reserve Chair Kevin Warsh delivered a hawkish June meeting, keeping rates unchanged and signaling through the dot plot that hikes were possible later in 2026. The repricing of rate expectations from three cuts to possible hikes strengthened the dollar and hit the entire industrial metals complex, with nickel among the hardest hit due to its surplus fundamentals. The DXY's recovery above 100 has been a headwind for all dollar-denominated commodities.

Shanghai Metals Market's neutral scenario for H2 forecasts LME nickel in a range of $15,500 to $17,500 per metric ton, with the balance hinging on the Indonesia quota outcome. A generous supplementary allocation could push prices toward $15,000; a restrictive one, combined with renewed sulfur supply tightness, could retest $19,000. SMM emphasizes that the surplus has not vanished — visible inventories, though declining on the LME, remain ample in China — but that policy, not fundamentals, is now the marginal price driver.

On the demand side, stainless steel — which accounts for roughly 70% of nickel consumption — has shown resilience in China despite the property downturn, supported by infrastructure and industrial equipment orders. Battery demand for nickel, driven by ternary NCM cathode chemistries, continues to grow but faces structural headwinds from the rise of lithium iron phosphate (LFP) batteries that contain no nickel. LFP now commands over 65% of the Chinese EV battery market, limiting nickel's demand upside from electrification.