LME three-month nickel has consolidated in the $17,000-17,500/t range after a dramatic 37% rally from the December 2025 low of approximately $13,900/t. The rally was triggered by Indonesia's decision to sharply reduce nickel ore mining quotas (RKAB) to 250-270 million wet metric tonnes for 2026, down from 379 million tonnes in 2025 — a reduction of roughly 34% that caught the market off guard.
The quota cut has fundamentally reshaped the global nickel supply outlook. The International Nickel Study Group (INSG) has revised its 2026 market balance from a 283,000-tonne surplus to a 32,000-tonne deficit, one of the most dramatic balance revisions in recent metals market history. This revision reflects the market's recognition that Indonesian supply discipline is structural rather than temporary.
The physical impact is already visible. Prices for nickel ore, nickel pig iron (NPI), and stainless steel have all moved higher in concert with LME nickel, suggesting genuine physical tightening rather than financial short-covering. The Indonesian government has also banned new NPI smelter and HPAL processing plant permits, signaling a strategic pivot from maximizing volume to maximizing value from existing capacity.
The quota cuts are compounded by structural cost pressures. Indonesian ore grades are falling below 1.5% nickel, increasing acid consumption per unit of nickel recovered in HPAL processing. Reliance on imported sulphuric acid further raises operating costs. This combination has raised the structural cost floor for Indonesian production, supporting LME prices in the high-$16,000s rather than the $15,000/t level assumed by earlier surplus forecasts.
However, the rally has capped some of the bullish momentum. The Argus view — that Indonesia's MHP capacity could nearly double to 862,000 t/yr in 2026 — represents a significant medium-term supply risk. If HPAL plants run at high utilization, the surplus narrative could reassert itself, particularly if battery demand growth disappoints.
Nickel at $17,000/t reflects a market that has repriced higher on Indonesian supply discipline, but the direction from here is uncertain. Buyers should adopt a hedging strategy that protects against further upside (to $20,000/t) while allowing participation if prices ease back to $15,000/t on HPAL capacity ramp-up. Collar structures with a $15,000-$20,000/t range are appropriate. Lock Q3-Q4 volume now — the ore quota situation could tighten further if the government extends cuts into 2027.