Two competing narratives are pulling the nickel market in opposite directions, and the tension between them will define the metal's trajectory through the second half of 2026. On one side sits the bear case: ING's latest forecast projects a substantial 261,000 tonne global nickel surplus this year, driven by robust class 1 supply growth from new HPAL and matte production routes and a softer demand backdrop from the stainless steel sector.
On the other side is the increasingly assertive policy-and-cost floor. Indonesia's dramatic 30% reduction in the 2026 RKAB ore quota — from 379 million tonnes to approximately 260-270 million tonnes — constrains the very feedstock that powers the world's largest nickel supply chain. At the same time, HPAL production costs have surged toward $18,000 per tonne, driven by the global sulfur shortage. Together, these forces create a powerful barrier below which nickel prices cannot sustainably trade.
The surplus thesis assumes that Indonesian nickel production continues to flow unimpeded and at low cost. The RKAB quota cut directly undermines both assumptions. If Indonesian ore supply cannot support current smelter operating rates at ~330-350 million tonnes of annual demand, refined output will fall short of the aggressive supply growth that underpins the ING forecast. The 261,000 tonne surplus could rapidly evaporate — or even flip to deficit.
Price action reflects this unresolved tension. LME nickel has consolidated in a $18,500-19,500 per tonne range following its Q1 rally, unwilling to break decisively higher or lower as the market weighs these competing forces. The range may persist until clearer data emerges on how Indonesian smelters respond to ore supply constraints — whether through stockpile draws, reduced operating rates, or increased ore imports.
What is clear is that the nickel market is no longer simply oversupplied. Policy intervention has changed the calculus. The surplus may exist on spreadsheets, but in the physical world, ore is scarce, costs are rising, and the floor is rising with them.
What this means for buyers
The surplus-versus-floor debate creates a nickel market where downside is limited but upside catalysts are not yet fully priced. Buyers should treat the $18,000/t level as a strong technical and cost-based floor and consider strategic purchases on dips toward that level. The risk is asymmetric: limited downside from the policy floor, but potentially significant upside if ore constraints force production cuts. Consider increasing forward coverage while prices remain range-bound.