Nickel Steadies Near $16,700 as Indonesia Quota Debate Creates a Two-Way Market

Nickel is the base metal market's most extreme example of a single-country supply concentration risk. Indonesia now controls approximately 55% of global nickel ore production and an even larger share of the intermediate products — nickel pig iron (NPI), matte, and mixed hydroxide precipitate (MHP) — that feed the stainless steel and battery supply chains. The 2026 Work Plan and Budget (RKAB) that sets Indonesia's annual mining quota is therefore not just a domestic regulatory document; it is the single most important variable in the global nickel price equation. As of mid-July, the market is pricing in confusion about what that document actually says.

The official position, reaffirmed by Indonesia's Ministry of Energy and Mineral Resources in late June, is that the 2026 RKAB caps nickel ore production at 260 million to 270 million wet metric tonnes — a significant reduction from the approximately 379 million tonnes produced in 2025. If enforced, this would represent a 28–31% cut in Indonesian ore output, removing approximately 350,000–400,000 tonnes of nickel content from the global market. The Nickel Miners Association (APNI) has publicly supported the lower quota, arguing that it is necessary to preserve ore reserves for downstream processing investments that are still ramping up.

However, the market has been destabilized by persistent reports — first published by ING and subsequently confirmed by multiple industry sources — that the government is considering raising the RKAB to approximately 360 million wmt at its scheduled end-of-July review. The logic is straightforward: Indonesia has invested billions in new smelting and HPAL (high-pressure acid leach) capacity, and those facilities need ore feedstock. A quota that is too restrictive risks stranding assets and undermining the investment case for further downstream development. The debate within the Indonesian government pits the Ministry of Investment (which favors higher quotas to support processing capacity utilization) against the Ministry of Energy (which favors conservation and higher-value downstream products).

The market reaction to this uncertainty has been violent. LME nickel peaked above $19,000 per tonne in late May — a 15-month high — driven by the initial shock of the 260–270 million wmt quota announcement and fears of an imminent supply deficit. When the reports of a possible increase to 360 million wmt emerged in mid-June, prices collapsed 14% in three weeks to $16,395, erasing nearly all of the year's gains. The current level of $16,725 represents an uneasy equilibrium: low enough that genuine supply-cut risks prevent further selling, but high enough — relative to the cost curve — that most Indonesian NPI producers remain profitable.

The inventory picture provides the most powerful argument against an immediate supply crisis. LME-registered nickel inventories have ballooned to a record 468,000 tonnes, up from approximately 40,000 tonnes in mid-2023 — a more than tenfold increase in two years. The accumulation reflects the tidal wave of Indonesian and Chinese nickel that has overwhelmed the market during the NPI expansion phase. Class 1 nickel (high-purity cathode and briquette, deliverable against the LME contract) has been particularly affected, with Chinese producers ramping up cathode production from intermediate Indonesian feed. The sheer scale of this inventory overhang means that even if Indonesia's quota is held at 260–270 million wmt, the physical market can draw on exchange stocks for many months before genuine tightness emerges.

This does not mean the supply risk is illusory. The Crux Investor analysis published on July 15 makes the case that Indonesia's quota decision, combined with 6–7% annual demand growth from the EV and stainless steel sectors, creates a path toward a deficit of 100,000–150,000 tonnes by late 2027 — even with elevated inventories. The math is compelling: if Indonesian production is indeed cut to the equivalent of 2.6–2.7 million tonnes of contained nickel (from approximately 3.1 million in 2025), and global demand grows by 180,000–200,000 tonnes annually, the surplus that built the 468,000-tonne inventory mountain disappears within 18–24 months.

The demand side merits attention that the oversupply narrative often obscures. Global EV sales reached approximately 10.5 million units in the first half of 2026 according to preliminary IEA data, putting the full-year trajectory at 21–22 million units. Nickel-rich NMC battery chemistries — while losing market share to LFP in China — remain dominant in European and North American EV platforms, where driving range and cold-weather performance matter more than absolute cost minimization. Stainless steel production, which still consumes roughly 65% of global nickel, is projected to grow by 3.5% in 2026 according to the International Stainless Steel Forum, driven by Indian capacity expansion and infrastructure spending.

The Oregon Group, a specialist resource investment firm, published an analysis in early July titled 'Can Nickel Prices Hit $25,000 in 2026?' arguing that the market is underpricing the probability of a genuine Indonesian supply cut. Their thesis: the government's downstream processing ambitions require ore conservation, not depletion, and the 260–270 million wmt quota is more likely to be tightened than loosened as the July review approaches. The counterargument, from ING, emphasizes that Indonesia's processing capacity utilization is a political priority, and the government will not tolerate smelters running below 70% utilization — which is what the lower quota implies for 2026.