SHFE nickel prices surged 3.52% to 154,690 CNY/mt, the largest single-day gain in June. The rally was accompanied by a 24% increase in open interest, indicating new long positions rather than short covering. The catalyst was a report that Indonesia's new government may reduce nickel ore export quotas for 2026-2027.
Indonesia's nickel ore export quota renewal is due in July, and market participants are watching closely. The previous government allocated 240 million wet metric tonnes for 2025-2026, but the incoming administration has signaled a more resource-nationalist stance. Any reduction would immediately tighten Chinese feedstock supply.
Chinese NPI producers rely on Indonesian ore for approximately 70% of their feedstock. Domestic ore grades are declining, and domestic mining costs are $15-20/mt higher than Indonesian imports. A quota cut would force Chinese producers to either pay more for ore or reduce run rates.
The SHFE-LME premium is now at its widest since April, at approximately $1,500/mt LME-equivalent basis. The premium reflects both the ore supply risk and the structural tightness in Chinese demand for Class II nickel feedstocks.
The ore quota risk is real but unquantified. Buyers with exposure to Chinese nickel intermediary products (NPI, nickel sulfate) should secure Q3 feedstock contracts before the July quota announcement. If quotas are cut by more than 10%, expect SHFE nickel to test 165,000 CNY/mt.