LME nickel settled at $16,570/mt on June 28, continuing a pattern of incremental declines that has seen the metal lose approximately $400/mt over the past two weeks. SHFE nickel fell 1.19% to ¥145,280/mt, reflecting weakness in Chinese stainless steel demand. Nickel is the base metal that refuses to rally despite a genuine supply-side reform in Indonesia, the world's largest producer. The reason is inventory: LME registered nickel stocks sit near 280,000 tonnes, close to a three-year high, and visible inventories across all exchanges exceed 300,000 tonnes. The market is telling a simple story: even a 30% cut in Indonesian mining quotas cannot absorb the accumulated surplus.
Indonesia's RKAB (Rencana Kerja dan Anggaran Biaya) quota system has become the most important supply variable in the global nickel market. In 2025, the Indonesian government approved mining quotas for approximately 240 million wet metric tonnes of nickel ore, down roughly 30% from the previous year. The policy shift reflects Jakarta's growing concern about rapid resource depletion and environmental damage from unregulated mining. The Weda Bay industrial complex, which processes approximately 40,000 tonnes of nickel per month in NPI (nickel pig iron) form, underwent maintenance-related production cuts in late May and early June 2026, further tightening the ore supply chain. But the cuts have not been deep enough or sustained enough to eliminate the surplus.
The surplus is real and measurable. The International Nickel Study Group (INSG) estimates that the global nickel market was in surplus by approximately 180,000 tonnes in 2025, following a 220,000-tonne surplus in 2024. For 2026, the INSG projects the surplus narrowing to roughly 90,000 tonnes as Indonesian supply growth decelerates and stainless steel demand recovers. Goldman Sachs' base case is a gradual tightening through 2026, with prices rising toward $17,000-$18,000/mt by year-end as the surplus is absorbed. PricePedia's forecast model, based on Consensus Economics surveys, projects LME nickel averaging $16,000/mt for 2026, rising to $16,500/mt by December.
The structural challenge for nickel is the Indonesia-driven transformation of the supply curve. A decade ago, nickel was primarily a sulfide mining industry, with laterite ores processed via energy-intensive RKEF (rotary kiln electric furnace) or HPAL (high-pressure acid leach) technologies at relatively high cost. Indonesia's massive laterite reserves, combined with Chinese investment in NPI and HPAL capacity, have shifted the global cost curve downward by an estimated $3,000-$4,000/mt. Indonesian NPI can be produced at cash costs of $10,000-$12,000/mt, and new HPAL projects in Sulawesi and Halmahera are producing Class 1 nickel (suitable for batteries) at costs below $12,000/mt. This means that any rally above $17,000-$18,000/mt incentivizes a wave of new Indonesian supply that caps the upside — precisely the dynamic that has kept nickel rangebound despite the RKAB quota cuts.
The demand picture is mixed. Stainless steel, which accounts for approximately 70% of nickel consumption, is seeing modest growth in China but stagnation in Europe and North America. Chinese stainless steel production is estimated to grow 3-4% in 2026, supported by infrastructure investment and appliance manufacturing. Battery demand for nickel — the other major end-use, accounting for approximately 12% of consumption — is growing faster but from a smaller base. The shift toward LFP (lithium iron phosphate) batteries, which contain no nickel or cobalt, has reduced the growth trajectory for nickel in EV applications compared to projections from 2022-2023. However, high-nickel NCM (nickel-cobalt-manganese) cathodes remain dominant in premium EVs and are seeing growth in the heavy-duty truck segment. The net result is nickel demand growth of approximately 4-5% in 2026, insufficient to absorb the accumulated surplus quickly.
LME inventory levels tell the surplus story in real time. At approximately 280,000 tonnes, LME nickel stocks are near their highest level since 2022 and more than triple the levels of early 2024. However, the inventory data masks a divergence: LME stocks are dominated by Chinese and Indonesian brands, while 'shadow inventories' of Class 1 nickel (the deliverable grade for LME contracts) in private warehouses in Asia are reportedly tightening. This creates a disconnect between the paper market (which sees surplus) and the physical market for battery-grade nickel (which is tighter). Goldman Sachs noted in its mid-2026 outlook that this divergence could trigger a short squeeze if Class 1 nickel availability deteriorates further while short positions accumulate against elevated LME stocks.
The policy overlay is increasingly important. Indonesia's government has signaled that the RKAB quota cuts are not a one-off but part of a broader strategy to manage the country's nickel resources for long-term value capture. Jakarta is also pushing downstream processing — requiring miners to build domestic smelters and refineries as a condition of maintaining export licenses. This policy has been highly effective in attracting Chinese investment but has also created overcapacity in NPI and HPAL production. The risk for nickel bulls is that Indonesian policy is inherently unstable: a change in government, a fiscal crisis, or pressure from Chinese investors could reverse the quota cuts quickly. The risk for bears is that the cuts stick, and that combined with incremental demand growth, they finally tighten the market enough to draw down inventories.
Analyst views reflect the market's uncertainty. Goldman Sachs sees prices drifting toward $17,000-$18,000/mt by Q4 2026, driven by inventory drawdown and improving stainless demand. BMI Research projects a more conservative $16,000-$16,500/mt average for H2 2026. The bull case — a sustained Indonesian quota squeeze combined with a recovery in Chinese stainless production — could push nickel to $19,000-$20,000/mt by year-end. The bear case — a reversal of Indonesian policy or a sharper-than-expected slowdown in stainless demand — would test the $15,000/mt support. The futures curve reflects this: LME nickel for December 2027 delivery is priced at approximately $17,500/mt, implying modest backwardation in the near term and gradual appreciation in the medium term.
The week ahead brings several nickel-specific catalysts. LME inventory data will be closely watched for any sign that the stock build is decelerating. The Indonesian government's monthly mining quota update, expected in the first week of July, will confirm whether the 30% cut is holding or being eroded by exceptions and special permits. And Chinese stainless steel mill operating rates for June will provide the first read on whether stainless demand is genuinely improving or merely stabilizing. Nickel is a market where the fundamentals are improving incrementally but the overhang is large enough that it may take months, not weeks, to clear.
Nickel buyers face a market that is cheap relative to its own cost structure but burdened by surplus inventory. The $16,000-$17,000/mt range is close to the Indonesian NPI cost floor, which limits downside risk. However, the 280,000 tonnes of LME inventory mean that any rally will face selling pressure until the surplus is absorbed — which the INSG projects will take until at least Q4 2026. Three specific recommendations: First, use the current price weakness to extend fixed-price contracts for Q3 and Q4. Nickel below $17,000/mt is historically cheap, and if the Indonesian quota squeeze tightens the market as expected, $18,000+ is likely by year-end. Second, separate your stainless and battery nickel procurement strategies. NPI-grade nickel has different supply dynamics (Indonesian-dominant, surplus) from Class 1 nickel (tight, exposed to Russian sanctions risk). If you procure Class 1 nickel for plating or specialty alloys, build a 4-6 week buffer now because the shadow inventory drawdown in Asia could trigger a localized shortage. Third, watch the RKAB quota announcements. The Indonesian mining quota cycle runs on a calendar-year basis, and any further tightening for H2 2026 would be a structural bullish signal that would likely be front-run by Chinese traders. The nickel market rewards patience — the surplus is real, but it is shrinking, and the time to lock prices is before the inventory overhang clears.