Indonesia's 2026 ore quota slashed: Nickel market reprices on supply tightening

Indonesia has delivered its most aggressive supply-side intervention in years, slashing the 2026 nickel ore production quota under the RKAB (Rencana Kerja dan Anggaran Biaya) system to approximately 250 million wet metric tonnes — a one-third reduction from the 379 million tonnes allocated in 2025. The move has triggered a sharp repricing across the nickel complex, with LME three-month nickel surging from December 2025 lows near $14,400 per tonne to trade above $19,000 per tonne by mid-May 2026.

The quota cut represents a fundamental shift in Jakarta's approach to the nickel market. After years of breakneck expansion that saw Indonesian output dominate global supply — accounting for more than 60% of seaborne nickel — the Prabowo administration is now using the RKAB mechanism as a deliberate tool of production management rather than mere administrative approval.

Inside the RKAB reduction: A targeted squeeze

The 2026 allocation of roughly 250–270 million wet metric tonnes sits well below the estimated 340–350 million tonnes of ore demand projected by the Indonesian Nickel Miners Association (FINI). The government has concentrated cuts on large-scale operations, reducing quotas for major producers by more than 70% in some cases, while allowing smaller mines to continue at reduced levels.

PT Central Omega Resources Tbk, for example, slashed its 2026 nickel ore sales target to approximately 1.03 million wet metric tonnes, down sharply from 3.02 million tonnes in 2025. Weda Bay Nickel — one of the world's largest nickel operations — received an initial 2026 RKAB quota of just 12 million wet tonnes, of which external sales are capped at 9 million tonnes.

The squeeze is already translating into real production cuts. Eramet announced a temporary production halt starting May 2026, while SMM reporting confirms that some NPI (nickel pig iron) production has been curtailed since March and April as ore availability tightens and operating costs rise.

Weda Bay and Morowali disruptions add fuel

Compounding the quota-driven supply constraints, operational disruptions at key Indonesian production hubs have added further upward pressure. The Weda Bay industrial park — a massive integrated processing complex — faces reduced ore feed as its RKAB quota nears exhaustion. Reports indicate the mine may enter care and maintenance once its 12 million tonne allocation is fully drawn down, potentially removing 4,000–6,000 tonnes of contained nickel per month from the market.

Meanwhile, a tailings incident at the Morowali industrial park has raised environmental and regulatory scrutiny over operations in the region. The incident, combined with ongoing uncertainty around the proposed centralized export agency, has injected additional risk premium into nickel pricing. Indonesia's government signaled on May 22 that NPI would be exempted from the centralized export policy, providing some relief, but the broader regulatory environment remains uncertain.

Can the rally hold? The 261kt problem

Despite the dramatic price appreciation, the nickel market still carries a substantial surplus overhang. ING forecasts a 261,000-tonne surplus for 2026, while the International Nickel Study Group (INSG) has revised its balance from a 283,000-tonne surplus in 2025 to a narrower 32,000-tonne deficit for 2026 — a dramatic swing driven entirely by Indonesian policy. However, the 2025 surplus inventories remain in LME warehouses, acting as a powerful ceiling on further price gains.

LME nickel inventories stand at approximately 287,550 tonnes, up 44.2% year-on-year. Combined registered and off-warrant stocks exceeded 367,000 tonnes at points in 2025, and large shadow inventories in Singapore and Kaohsiung continue to hang over the market.

"Since the end of 2025, Indonesian government policies are bringing about a major change in the supply/demand and pricing dynamics of the nickel market," said Macquarie analyst Jim Lennon, noting upside risk if quotas remain tight. However, the path higher is complicated: any sustained move above $20,000 per tonne would likely accelerate the LFP battery chemistry shift, denting demand growth, while also encouraging quota revisions — the government has already signaled that companies can apply for revised RKABs in the second half of 2026.

Outlook: Managed scarcity with a ceiling

The nickel market in mid-2026 is defined by this tension: deliberate supply management from Jakarta pulling prices higher, while a massive inventory buffer and structural demand-side headwinds limit the upside. Short-term, prices are likely to remain supported in the $18,000–$20,000 range, with potential spikes above $20,000 on any additional disruption. But the sustainability of the rally depends on whether Indonesia maintains quota discipline through H2 2026 without issuing supplementary allocations — a political question as much as an economic one.