Indonesian Nickel Supply Cut Sends LME Prices Soaring

Indonesia, the world's top nickel producer, has signaled its intention to cut production in 2026 to support prices, triggering a significant rally in nickel futures. This move could dramatically reshape the global nickel market's supply-demand balance.

Minister's Statement and Market Reaction

Indonesia's Minister of Energy and Mineral Resources, Bahlil Lahadalia, announced the planned production cuts, aimed at better aligning supply with demand. Given Indonesia's control of nearly 70% of global nickel output, this decision directly impacts the commodity's pricing power. Previously, Indonesia's surging production had been a major factor weighing on global nickel prices.

In response to the news, nickel prices on the London Metal Exchange (LME) surged as much as 4.7%, hitting $16,560 per tonne. This continues an upward trend alongside other metals since mid-December.

Analysis: Addressing the Supply Glut

Analysts believe that a successful implementation of Indonesia's production cuts would significantly alleviate current high inventory pressures, providing a solid floor for the struggling nickel price. LME-tracked warehouse inventories have risen rapidly due to oversupply, consistently suppressing price rebounds.

Challenges in the Nickel Market

Indonesia's policy shift comes as the global nickel market faces severe challenges. While there's long-term structural demand from the stainless steel and electric vehicle battery industries, this year's market performance has remained disappointing.

One key issue is that demand growth hasn't met expectations. The rise of alternative battery chemistries like lithium iron phosphate (LFP) has reduced the demand intensity for nickel, particularly in the battery sector, keeping prices low for most of 2024.

Indonesia's Policy Tools and Market Focus

The Indonesian government possesses powerful tools to control supply, mainly by tightening the issuance of mining quotas (known as RKAB). This suggests Indonesia has both the will and the administrative ability to intervene directly in market supply. This supply-side adjustment is seen as a direct response to the current market imbalance.

Looking ahead, Indonesia's production policy is a core variable determining nickel price trends next year. Given its dominance in global supply, any policy change will have a systemic impact on global supply chains. Market participants are closely monitoring details of mining quota issuances to assess the actual execution and scale of the planned production cuts.