Indonesia Considers Nickel Production Cuts Amid Market Uncertainty

The nickel market is facing significant uncertainty as Indonesia, one of the world’s largest suppliers of the metal, contemplates a drastic reduction in its nickel production quotas for 2025. This comes after nickel prices fell below $15,000 per ton in early January, marking a four-year low.

Over the past few months, nickel prices have been under pressure due to oversupply and weaker-than-expected demand. By January 3, the average price of nickel had dropped to its lowest point since October 2020, falling to $14,995 per ton. This sharp decline is the result of a combination of factors. At the same time, inventories at major exchanges, such as the Shanghai Futures Exchange (SHFE), increased significantly, with nickel stocks reaching their highest levels since August 2020. Similarly, the London Metal Exchange (LME) saw nickel inventories rise to a peak not seen since September 2021.

In response to the persistent price decline, the Indonesian government is considering a significant reduction in its nickel mining quotas for 2025. According to reports, Indonesia plans to cut its mining quota from 272 million tons in 2024 to 150 million tons in 2025. This move would represent a nearly 45% decrease in production, potentially affecting around 35% of global supply. 

Indonesia’s Dominance in the Nickel Market

The surge in Indonesia’s nickel production over the past decade has been a major factor in the current market dynamics. According to data released by the U.S. Geological Survey, in 2014, Indonesia accounted for less than 6% of global nickel output. However, by 2023, that figure had risen dramatically to 50%, driven by the country’s strategic push to dominate the nickel market. This shift was part of Indonesia’s broader strategy to attract high-value investments in mining and processing, particularly from China, which is heavily invested in nickel for its stainless steel and battery industries.

As Indonesia’s production has increased, many other global nickel producers have found themselves unable to compete. In places like New Caledonia, mines such as Koniambo Nickel SAS and SLN’s Poum mine are facing the prospect of closure, partly due to the pressure exerted by Indonesia’s lower-cost production.

What Does This Mean for the Future of Nickel Prices?

While Indonesia’s production cuts could help alleviate the current supply glut, analysts remain uncertain about the potential impact on nickel prices in the short term. Although the reduction in supply could tighten the market, it will take time for smelters to adjust their production rates. Additionally, the outlook for nickel prices will ultimately depend on demand. If demand continues to remain weak, the supply cuts may not lead to a significant rebound in prices.

Market observers are also watching the significant stockpiles of nickel at various exchanges, which provide a buffer against immediate supply shortages. The future direction of nickel prices, therefore, hinges not only on supply adjustments but also on the evolving demand conditions in key industries such as stainless steel manufacturing and battery production.

As the situation unfolds, the nickel market will need to navigate the challenges posed by overcapacity, fluctuating demand, and potential production adjustments from one of the world’s leading suppliers.