Nickel prices rebounded late last year, going beyond the range of $14,000-$16,000 per tonne and rising up to $19,600 per tonne by May 2026 as Indonesian authorities moved to curb the surplus supply. Having previously flooded global markets with nickel, Indonesia has reduced its mining quotas this year and tightened the ore pricing. These market-improving measures were supported by a sulfur shortage that affected battery-grade nickel producers in the country. Market participants estimate that Indonesia’s new policy and rising production costs have reinforced the nickel price floor at $18,000 per tonne. However, as the nickel price approaches $20,000 per tonne, it will be more difficult to sustain growth, as Indonesia retains the rights to allocate additional quotas in the second half of the year. China is actively pushing Indonesia toward this, warning of a loss of $50 bn in mining investment (of which $20 bn is planned) and 400,000 jobs if production restrictions are maintained.
Indonesia: quota reduction and sulfur deficit
The International Nickel Study Group (INSG) expects nickel demand to grow by 4.2% this year to 3.747 mn tonnes, while nickel production will drop by 4.2% to 3.715 mn tonnes. After three years of a nickel surplus, the market has a deficit of 32,000 tonnes, compared to a surplus of 283,000 tonnes a year ago.
The nickel deficit is due to heavy regulations of Indonesia’s mining sector adopted in 2026. The nickel ore mining permits (known as RKAB) for 2026 were set at a significantly lower level (260 mn - 270 mn tonnes) than in 2025. A year ago, the quota was 379 mn tonnes, and 320 mn tonnes were mined. With an expected quota utilization rate of approximately 90% and a decline in nickel ore grade, Nornickel estimates that nickel production in Indonesia this year could decline by 19% to 2.3 mn tonnes. This will allow the nickel market to approach a balanced state this year, Nornickel believes.
Last year, refined nickel production in Indonesia increased by 6% to 3.86 mn tonnes amid continued capacity expansion, while Class 1 nickel output was up 89%.
The share of Indonesia in the nickel market:
Source: Goldman Sachs Research
Quotas for major producers in Indonesia have also been reduced. For example, the quota for Weda Bay controlled by China’s Tsingshan was reduced to 12 mn tonnes for 2026 from 42 mn tonnes in 2025, highlighting the tightening of supply control.
Furthermore, a new revised price mechanism (HPM) came into effect in Indonesia on April 15. This revised formula includes not only the content of nickel in ore but also that of cobalt, iron, and chromium. Depending on the nickel content, the minimum price has increased by a factor of 2-3, thereby increasing the cost of production of Class 1 nickel from Indonesian raw materials to approximately $5,000 per tonne, calculated per cathode.
The sulfuric acid shortage puts an additional pressure on producers using a HPAL (high-temperature acid leaching) technology that processes low-cost laterite ores into battery-grade nickel. This technology accounts for approximately 30% of Indonesia’s total nickel output. Producing one tonne of nickel using this technology requires 10-11 tonnes of sulfur. A surge in sulfur prices (from $300 to over $1,000 per tonne) amid the Middle East crisis has impacted the nickel production: in May, output at the HPAL projects in Indonesia dropped by 20% year-on-year, according to Nornickel.
Indonesia is particularly vulnerable as it relies on the Middle East for approximately 75% of its sulfur imports, while the stocks may only last one to two months. If disruptions persist, the acid shortage could escalate from the pressure on margins to a real constraint on battery-grade nickel production, according to the Sucden Financial’s report.
Overall, Nornickel estimates that refined nickel supply will decline by 5% this year to 3.71 mn tonnes, following a 7-percent increase in 2025. This will result in a significant surplus reduction by about 20,000 tonnes (from 278,000 tonnes a year ago). Nornickel expects the production to grow by 5% to 3.88 mn tonnes in 2027, and the surplus to increase moderately to 55,000 tonnes.
Nickel Market Balance, 2021–2027, in 1000 t Ni:
Source: Metals Market Review, Norilsk Nickel, June 2026
Blue – Surplus. Red – Shortage.
Due to the declining supply in Indonesia and a sulfur shortage, Indonesia’s refined nickel output will decrease by 1% year-on-year in 2026, the first decrease in a decade, according to Goldman Sachs. The bank raised its average nickel price forecast for this year to $17,200 per tonne from $14,800 in February, and to $18,500 in May. Goldman Sachs expects Indonesia to approve additional ore quotas in the third quarter and stabilize supplies in the second half of the year, which will result in a decline in prices from the second-quarter peak of $19,250. However, the bank believes the risks remain if the sulfur shortage persists beyond June and results in a wider decline (by another 50,000 tonnes) in the production using HPAL.
Investor speaks out against new policy
Indonesia’s new policy has sparked protests from China, the largest investor dominating the country’s mining sector. According to the FT, China warned Indonesia’s Ministry of Energy and Mineral Resources in April - through its embassy in Jakarta - of the consequences from cutting mining quotas and changing the pricing mechanism.
According to China’s officials, these measures could undermine Indonesia’s nickel industry; almost all such projects lose their “operational viability” due to a nearly 200-percent increase in battery-grade nickel production costs. “Preliminary estimates indicate that these measures could impact ongoing investments worth $30 bn and planned upcoming investments worth $20 bn, while simultaneously reducing the annual exports of nickel products by about $23 bn,” the statement reads.
Indonesia’s response was prompt: in late June, Bloomberg reported on the impending regulatory reversal. According to the agency’s sources, the country’s Ministry of Energy and Mineral Resources informed some mining companies that their total RKAB quotas will be increased to 360 mn tonnes by mid-year. The mining quota relaxation plan is still subject to change, Bloomberg notes. Mining companies should submit applications for higher mining quotas in early July.
Mining quotas are open for increases, with permit holders entitled to submit one request for a quota change, depending on the assessment of supply and demand by the government, INSG notes. Changing the quotas is scheduled for July: a significant increase in quotas and higher actual utilization of the mining quotas could return the market to a significant surplus, Nornickel warns.
The risk of additional mining permits in Indonesia increases as prices approach $20,000 per tonne; therefore, Indonesia’s policy regulates not only the price floors but also the price ceilings, Sucden Financial notes. Rising prices are triggering supply increases through the changing of Indonesia’s quotas, limiting the sustainability of upward trajectory. As a result, a price trajectory is determined largely by the signals of Indonesia’s policy and the sulfuric acid availability, while the role of demand is more limited as it cannot absorb supply on its own, according to Sucden Financial.
Stainless steel demand
Stainless steel remains the largest sector for nickel demand, accounting for 63% of metal consumption.
This segment is growing steadily: in value terms, it is expected to grow by 4.6% in 2026 to $163.3 bn. The average annual growth rate is expected to be 5.1% through 2035.
Stainless steel production growth from 2008 to 2025:
In 2025, nickel consumption in the stainless steel sector increased by 4%, which primarily drove overall demand growth by 6% to 3.62 mn tonnes. Consumption in the alloys sector was up 5%, while it was up 2% in the sector of specialty steels.
Norilsk Nickel expects the global nickel consumption to grow by 2% (or by 79,000 tonnes) in 2026 to 3.69 mn tonnes. “In the stainless steel sector, nickel demand growth is likely to be limited as increased scrap consumption by China’s producers reduces the need for primary nickel, despite the continued growth in stainless steel production. This effect will be partially offset by an increase in the share of 316-grade steel in China that contains more nickel than 304-grade steel. More robust demand growth is expected in the sectors of alloys, specialty steels, and batteries,” according to a nickel market review published in June.
Annual change in nickel demand by main sectors, thousand tonnes.
Source: Quintessentially Nickel, June 2026
In 2027, Norilsk Nickel estimates that nickel demand will increase by 4% (or by 137,000 tonnes) to 3.83 mn tonnes, driven by expanded use in both stainless steel and battery sectors.
Battery sector
In the battery market, the role of nickel is growing more slowly than expected, as nickel-free lithium iron phosphate (LFP) chemical compounds are gaining a market share, and demand for plug-in hybrid vehicles (PHEVs, combining an electric motor and an internal combustion engine) outpaced the demand for fully electric vehicles, INSG notes. The overall slowdown in electric vehicle sales in Western countries, where nickel-containing batteries dominate, coupled with the adoption of LFP batteries in China, reduce the demand growth pace for nickel in this fast-growing segment.
Nevertheless, the nickel demand in the battery sector is expected to grow by 8% this year (to 538,000 tonnes) after a 2-percent increase a year ago, according to the Quintessentially Nickel report published by Norilsk Nickel in late June. Early in the year, China saw significant growth in nickel-cobalt-manganese (NCM) battery production ahead of the reduction of tax exemptions for battery materials from 9% to 6% effective April 1. However, Norilsk Nickel expects this growth to slow during the year.
In 2027, nickel use in batteries is expected to increase by about 9% to 586,000 tonnes, driven by continued growth in nickel-containing battery production both in China and abroad.
Although nickel-containing batteries have faced tough competition and lost part of their market share to lower-cost LFP ones in recent years, they may find new demand in the applications requiring higher performance, according to Quintessentially Nickel. Power systems in data centers, for example, require batteries with higher energy density, power, and reliability, which could increase the use of high-nickel chemical compounds. Furthermore, the potential shift to ultra-high-nickel precursors in some solid-state systems can open another opportunity for a growing demand for battery-grade nickel, according to Nornickel.
The trend toward increased electrification of vehicles due to the situation in the Persian Gulf could be a tailwind for nickel, according to Nornickel. Electric vehicles are expected to account for a larger share of total vehicle sales in 2026, owing to the energy crisis that emerged due to the war in the Middle East. According to the International Energy Agency (IEA) report, the recent surge in oil prices significantly stimulates consumers to cut their costs, and electric vehicles generally have lower operating costs. Countries most affected by the supply shock are currently seeing increased purchases of electric vehicles, the report states.
Sergey Bondarenko for Rough&Polished
