Nickel Prices Soar on Indonesian Output Cut Speculation, Topping $16K

Nickel prices surged beyond $16,000 per tonne on the London Metal Exchange (LME), driven by expectations of production cuts by Chinese producers in Indonesia. This development has fueled optimism for a tighter supply, marking the fourth consecutive day of price increases following a nine-month low. The recent upward trend provides some relief amid persistent concerns about oversupply.

• On October 21, nickel prices spiked by as much as 2.7%, eventually settling 2.1% higher at $16,005 per tonne.
• The price increase effectively reduced the metal's year-to-date decline to under 4%.
• The price recovery is driven by increased expectations that producers may cut output to counteract weak prices and rising operational costs.
• The global nickel market continues to grapple with a supply surplus.
• The rally's sustainability hinges on whether proposed production reductions materialize into actual cuts.

The recent upswing in the market is largely driven by increasing speculation that leading Chinese nickel producers may coordinate production cuts at their Indonesian facilities.

High-pressure acid leaching (HPAL) plants are essential for producing mixed hydroxide precipitate (MHP), a critical intermediate in manufacturing battery chemicals. According to Bloomberg, executives from several leading Chinese producers are considering potential production cuts, although a previous attempt to reach consensus in August was unsuccessful. Market observers are now closely monitoring the possible extent of these reductions. Gao Yin, an analyst at Shuohe Asset Management, emphasized to Bloomberg the significant nature of the production cuts currently being discussed in the market.

Amid these supply concerns, nickel prices have surged, driven by expectations of tighter supply as hopes for reduced production influence market sentiment. Indonesia, as the world's leading nickel producer, plays a pivotal role in global supply dynamics, where any fluctuations in its output can significantly impact global supply and pricing.

Additionally, the recent price recovery has been bolstered by short-covering activities, as noted by Trading Economics. This phenomenon occurs when traders purchase nickel contracts to settle bets on declining prices, thus intensifying buying pressure in the market.

Nevertheless, this rebound does not assure a sustained recovery. Future prices will be contingent on various factors, including Indonesia's production choices, demand for stainless steel, battery market trends, and the emergence of new supply sources.

The LME nickel price curve indicates an upward trajectory for longer-term contracts, with prices escalating from about $15,900 per tonne for immediate delivery to an estimated $18,400 per tonne for contracts due in December 2029.

This upward trend suggests the market expects nickel prices to be higher in the future, although the curve reflects current market pricing rather than a guaranteed forecast.

Indonesia’s nickel industry faces pressure from weaker selling prices, rising costs, and tighter mining quotas. These conditions have increased the incentive for producers to reconsider production levels.

Under its annual work plan and budget system, known as RKAB, the country approved a lower nickel ore production quota for 2026 than for 2025. The International Nickel Study Group (INSG) noted that Indonesia’s quota decisions consider supply and demand conditions. Applications for 2027 quotas are due by November 15, 2026.

Weather-related disruptions have added another supply risk. Bloomberg earlier reported that water shortages linked to El Niño forced nickel smelters at the Morowali Industrial Park to reduce nickel pig iron (NPI) production. The potential impact was estimated at 100,000 tonnes.

NPI is a lower-grade nickel product primarily used in stainless steel production. Reduced NPI output could tighten supply in that segment, while potential cuts at HPAL facilities could affect nickel intermediates used in battery manufacturing.

These developments could support prices if they lead to meaningful production losses. However, lower mining quotas and temporary operating disruptions do not automatically translate into a sustained global shortage, particularly when producers continue to expand processing capacity.

• The Northern Miner has highlighted the expansion of Chinese-backed projects in Indonesia.
• These projects have increased the capacity for both stainless steel and battery materials.
• There is a challenge in balancing supply with demand.
• Despite recent price increases, the International Nickel Study Group (INSG) predicts a continued surplus in the global nickel market according to its October outlook.
• Initially, the INSG had forecast a 32,000-tonne deficit for 2026 in April.
• This forecast has been revised to a 19,000-tonne surplus.
• The earlier forecast would have marked the first annual supply shortfall since 2021.
• The revision indicates stronger production growth than previously anticipated.
• Both supply and demand estimates have risen.
• Production still slightly outpaces consumption.
• The revision reflects stronger expected production growth than previously anticipated.
• Both supply and demand have increased in the group’s estimates.
• Production remains slightly ahead of consumption.

Nickel Market Shifts: Surplus Narrows, Demand Grows

Market forecasts indicate a significant narrowing of the surplus by 2026, followed by an expansion in 2027. Despite this year's surplus being smaller compared to 2025, it still suggests that production is expected to outpace consumption. The INSG has noted that its production forecasts don't include adjustments for potential supply disruptions, meaning actual output could deviate from predictions.

Nickel demand is primarily driven by stainless steel manufacturing, with rechargeable batteries also contributing significantly to consumption. According to the World Stainless Association, global production at stainless steel melt shops rose by 5% in the first half of 2026 compared to the previous year. The INSG anticipates further growth in this sector during the latter half of 2026 and throughout 2027. While increased stainless steel production could help absorb extra nickel supply, the outlook for electric vehicle (EV) batteries remains more uncertain. The IEA projects that by 2035, batteries will account for 30% of total nickel consumption, fueling nearly two-thirds of demand growth. This demand is expected to be driven predominantly by battery manufacturers outside China, especially in North America and Europe, where consumers prefer long-range EVs.

The increasing adoption of lithium iron phosphate (LFP) batteries, which do not require nickel, has the potential to reduce the demand for battery-grade nickel. While nickel-based batteries are anticipated to remain crucial for certain electric vehicle (EV) applications, the rate of their adoption will determine how quickly new supply is integrated into the market.

Nickel Prices Surge Amid Production Uncertainty

The recent rise in nickel prices to over $16,000 per tonne illustrates the market's sensitivity to anticipated production cuts. However, with Indonesian producers yet to reach a consensus on the proposed reductions, the actual impact on supply remains uncertain. The International Nickel Study Group (INSG) anticipates a modest surplus of 19,000 tonnes in 2026, growing to 70,000 tonnes by 2027, indicating that the risk of oversupply may persist, particularly if battery demand does not meet expectations.

Currently, the trajectory of nickel prices depends on tangible production cuts, Indonesia's mining quotas, and demand from stainless steel and battery manufacturers. Without a decrease in supply or an increase in demand, the recent surge in prices might be fleeting.

For now, nickel prices will depend on actual production cuts, Indonesia’s mining quotas, and demand from stainless steel and battery makers. Without lower supply or stronger demand, the recent rally may be short-lived.