Column: Nickel market plays the Indonesia’s numbers game

Nickel prices have been on an explosive rally as the market bets that Indonesia, the world’s largest producer of the battery metal, will hit the brakes on its runaway output growth.

London Metal Exchange (LME) three-month metal has motored higher from a mid-December low of $14,235 per metric ton to a January 14 peak of $18,905, a level last traded in 2022.

Indonesia’s Energy and Mineral Resources Minister Bahlil Lahadalia triggered the nickel resurgence mid-December with a promise to cut production.

This year’s annual mining permits will be cut to 250-260 million wet tons of ore from 379 million tons in 2025, an energy ministry official confirmed on January 14.

Given Indonesia accounts for some 65% of global nickel supply and has created the glut weighing on prices over the last two years, this is obviously big news. Hence the market reaction.

But there’s a lot of devilish detail behind those headline numbers.

Number-crunching

Firstly, Indonesia’s mining quotas are in wet tons. As analysts at Macquarie Bank point out, the headline numbers are “difficult to convert into actual recoverable nickel units due to the wide variation of moisture content of ores.” Moisture levels can be up to 40% of the wet tonnage.

Moreover, neither operators nor government formally report either quotas or production levels, which doesn’t help anyone trying to figure out what is going on in Indonesia’s giant nickel sector, the bank adds.

What is certain, though, is that last year’s quota was far higher than actual output. Total ore demand from Indonesia’s processing plants was only 300 million wet tons last year, according to the country’s nickel smelter association FINI.

And that includes imports of ore from the Philippines, which reached 14 million tons in the first 11 months of 2025, according to the World Bureau of Metal Statistics.

This year’s mooted quota will indeed mean production cuts, just not of the size implied by the “slashing” of quotas.

Smelter demand for ore is forecast by FINI to rise to 340-350 million tons this year, creating a significant gap that can only partly be filled by imports and destocking.

Come back in June

FINI’s ore demand forecast tells you how much processing capacity is still ramping up in Indonesia.

Which presents the government with a thorny problem: how to restrain ore supply without harming smelters that are already under construction or in the process of ramping up?

The whole thrust of Indonesian resource policy is to create greater value by moving down the processing chain from ore to intermediate products to finished nickel.

Depriving new projects of feed isn’t going to help.

The stated ambition is to match ore supply with smelter demand but the latter is still growing fast, even if Jakarta has stopped approving some new projects.

If the tensions between quota-capped ore production and smelter demand grow too acute, there is a safety valve in the form of a mid-year review of how things are going.

The headline annual mining permit number, in other words, may be a moving target as the year progresses.

Taking back control

There’s no doubt that Jakarta is serious about taking more control of a sector that has grown too big too fast.

It’s cracked down on illegal mining and on operators working in breach of environmental rules.

In November it halted the approval of new smelters producing intermediate products such as nickel pig iron and matte used primarily by the stainless steel rather than the electric vehicle battery sector.

Reducing the annual quota is another part of the strategy but don’t expect the Indonesian nickel juggernaut to come to a shuddering halt.

This could be a slow process and the numbers are most likely going to change again.

(The opinions expressed here are those of the author, Andy Home, a columnist for Reuters.)

(Editing by Marguerita Choy)