Indonesia may slash nickel output to steady prices

[Ben Graham]

Indonesia, the world’s top nickel producer, might reduce production by one-third in 2026 to keep prices from declining further.

In its 2026 Work Plan and Budget, the Indonesian government is proposing a 34% reduction in production from this year’s total to 250 million tonnes next year, the Shanghai Metals Market (SMM) reported Wednesday, citing the Indonesian Nickel Miners Association (APNI).

The target is a government-level plan and details of its final implementation aren’t yet clear, APNI Secretary General Meidy Katrin Lengkey said Tuesday, SMM reported.

Indonesia nickel move may cut global supply by 35%, Macquarie says

Indonesia’s falling grades

Jakarta’s output control efforts are due to nickel grades dropping, Canada Nickel (TSXV: CNC) CEO Mark Selby told The Northern Miner‘s International Metals Symposium in London this month.

“You’re going to see the Indonesians give the market a shove,” he said. “Because grades and chemistry of the ores have been dropping, Indonesia imports ore from the Philippines. That’s the equivalent of Saudi Arabia importing oil from Iran or Iraq. That supply really isn’t unlimited, and the Indonesians will take advantage of this window to start to get nickel back up to the $18,000 to $20,000 per tonne range.”

Prices down 7-8%

Nickel prices have fallen by about 7% to $14,376 per tonne over the past year, following an enormous spike to $48,078 per tonne in March 2022, just after Russia invaded Ukraine. Prices then moderated before spiking again to about $21,615 in May 2024, then declined by about 34% to today’s level.

However, BMO Capital Markets analyst Helen Amos forecasts a surplus next year of 240,000 tonnes of nickel if Indonesia’s production targets are significantly cut and mining companies comply with the directive.

Oversupply

Meanwhile, Amos said Russia’s Nornickel – the world’s largest nickel producing company – is forecasting the nickel market will face an even greater oversupply of 275,000 tonnes next year after this year’s surplus of 240,000 tonnes. She noted that Nornickel released its assessment before the APNI announcement.

Indonesia produced 2.2 million tonnes of nickel in 2024, according to the United States Geological Survey. The Philippines is the second highest producer, booking 330,000 tonnes last year, while Russia produced 210,000 tonnes.

The Southeast Asian countries produce most of the world’s lateritic nickel, which has lower up-front mining costs but is energy-intensive and environmentally destructive. Sulphide nickel, mined in Canada, Russia and South Africa has a lower energy and environmental footprint.

Cost rise potential

Rick Rule, veteran investor and CEO of Rule Investment Media, has warned that the high environmental costs of mining lateritic nickel are unsustainable.

“I don’t believe that the Indonesian government or people – or to a lesser extent the Filipinos – will allow that to go on for too much longer,” he said earlier this month at the London Symposium. “The costs associated with mining those lateritic deposits responsibly will raise the cost curve fairly substantially.”

Canada Nickel’s Crawford project, near Sudbury, Ontario, is said to hold the world’s second-largest nickel reserves and resources. It was referred in November to the federal government’s Major Projects Office for potential fast tracking.