Indonesian nickel pig iron production hit a record 925,000 metric tons of contained nickel in May, according to SMM estimates. The increase was driven by ramped-up production at new RKEF (Rotary Kiln Electric Furnace) lines in the Indonesia Weda Bay Industrial Park. Despite falling NPI prices and margins, most producers continue operating to service debt obligations.
The discount of NPI to LME nickel has widened to $2,500 per ton, reflecting the structural oversupply of Class II material. This spread has persisted as Indonesian capacity additions continue to outpace demand growth. The HPAL (High Pressure Acid Leach) sector capacity has expanded to an estimated 450,000t per year of nickel in mixed hydroxide precipitate (MHP) and matte.
The Indonesian government has not signaled any new export restrictions, despite falling revenues from nickel-related taxes. Policy stability has encouraged continued investment in downstream processing capacity. Two new HPAL plants are expected to begin commissioning in Sulawesi by Q4 2026, adding an estimated 120,000t of MHP capacity.
Environmental and regulatory scrutiny of Indonesian nickel processing is increasing, with NGOs raising concerns about coal-powered RKEF furnaces and tailings management. However, no major policy changes are expected before the next presidential review cycle in 2027. The cost of compliance measures could add $500-1,000/t to Indonesian NPI production costs over time.
The Class II surplus is structural and will persist. Buyers of NPI, MHP, or nickel sulfate should negotiate discounts to LME as the benchmark, not flat-price contracts. The $2,500/t NPI-LME spread is a useful reference for Class II negotiations. Monitor Indonesian policy for any export restrictions that would narrow the spread.