Declining Ore Quality and Tightening Quotas Reshape the Global Nickel Market

• Indonesian ore grades declining sharply: Nickel ore grades dropped from 1.66% in 2024 to 1.52% in 2025, with traded material now predominantly in the 1.3-1.4% range, raising long-term cost and supply concerns.
• Indonesia's sovereign wealth mechanism: The government is routing nickel and other commodity transactions through a new sovereign entity, primarily to monitor tax compliance from offshore Chinese operators.
• Quota management affecting producers: Companies like Weda Bay have halted mining after exhausting quotas, with reinstatement potentially tied to outstanding regulatory fines - illustrating Indonesia's tightening supply controls.
• M&A activity picking up in nickel: Lifezone Metals is reportedly in acquisition talks with a Hong Kong-based group; activity in Madagascar and interest from Chinese companies in other jurisdictions also noted.
• Emerging technologies gaining traction: Canada Nickel's geological hydrogen pilot with MIT-linked GeoRedox, and First Atlantic Nickel's awaruite-hydrogen work, signal growing interest in alternative value streams from nickel-bearing geology.

Investors tracking the global nickel market are confronting a new set of structural variables - declining ore grades in Indonesia, evolving government oversight mechanisms, quota-driven supply management, and a modest wave of M&A activity - all of which were central topics at the annual Shanghai Metals Market nickel conference held in Jakarta. Mark Selby, CEO, Canada Nickel, shared his observations covering market dynamics, corporate developments, and emerging technology pilots.

Ore Grade Decline: The Structural Undercurrent

Perhaps the most significant - and under appreciated - development in the Indonesian nickel market is a pronounced decline in ore grades. Selby noted that grades fell from approximately 1.66% nickel in 2024 to around 1.52% in 2025, a drop of roughly 8-10%. More tellingly, he observed that commercially traded material in the spot market is now predominantly in the 1.3-1.4% range.

"It's tough to find volumes of material that are traded marketwise north of 1.4%. Most of the material you see in the market is 1.3 to 1.4%."

This grade compression has practical consequences. It partly explains why the Philippines - historically considered a lower-quality source - is now shipping higher volumes, as its ore grades are increasingly competitive with Indonesian supply. For producers and processors relying on Indonesian feedstock, declining grades translate directly to higher per-unit processing costs and reduced output efficiency. Over the medium term, this dynamic is expected to pressure operating margins across the value chain, even as miners at the ore-supply level may benefit from volume-based quota revenues.

Sovereign Oversight and Quota Management

Indonesia's government has established a sovereign wealth-linked entity to route transactions across nickel and other key commodities. According to Selby, the primary motivation appears to be ensuring tax compliance - particularly from offshore Chinese companies operating within Indonesia's processing complex.

"Just in terms of making sure particularly offshore Chinese companies are managing the transactions - that the government is seeing the tax revenue that's supposed to go to the government actually go to the government."

While the stated objective is fiscal transparency, market participants have expressed caution about the broader implications of additional government intermediation in commercial transactions. Indonesia has also continued to use its quota allocation system as an active supply management tool. This has had direct consequences for some producers: Weda ay suspended its mining operations after exhausting its allocated quota, with reinstatement reportedly contingent on the payment of outstanding regulatory fines running into the tens of millions of dollars.

Selby noted that the Indonesian government appears to be deliberately managing prices within a band. "For the foreseeable future, for the next year or two, you'll see them in that $18,000 to $21,000 price range," he said, adding that once comfortable, authorities may allow prices to move higher without risking market share.

M&A Signals: Lifezone, Madagascar, and Sherritt

A meaningful uptick in M&A activity is being observed across the nickel sector, which has endured several years of price weakness and investor disinterest. Lifezone Metals, which controls a high-grade nickel deposit originally discovered in the 1980s and has been advancing it toward a construction decision, is reportedly the subject of acquisition interest from a Hong Kong-based group.

Meanwhile, Sherritt International - a Canadian miner with significant operations in Cuba - has attracted bid interest from a U.S.-linked private equity group seeking a 45-50% stake. Sherritt has faced longstanding complications from U.S. sanctions under the Helms-Burton Act, and the political dimension of any ownership change remains significant given the current U.S. posture toward Cuba.

Emerging Technology: Geological Hydrogen and Awaruite Processing

Two technology-related developments were highlighted. Canada Nickel - through a partnership with GeoRedox, an MIT-affiliated group - announced a pilot project to test geological hydrogen production at its Timmins property. The process involves injecting water under specific subsurface conditions to stimulate hydrogen generation from nickel-bearing ultramafic rocks. Selby emphasised the process's environmental credibility, noting the absence of chemical catalysts.

First Atlantic Nickel has drawn attention for a similar awaruite-focused hydrogen initiative, partnering with a University of Colorado-linked group. However, Selby urged investors to look beyond the current share price momentum and evaluate the underlying metallurgical work still required. "First Atlantic, with no resource and no metallurgical work, is actually trading at a higher value than FPX," Selby noted. He cautioned that recovering nickel from ultramafic deposits requires a detailed understanding of mineral particle size and concentrate producibility - work that FPX has completed extensively but First Atlantic has yet to publish.

Key Takeaways and Implications

The Indonesian nickel market is entering a more complex phase. Ore grade decline is a real and measurable constraint that will increase production costs and reduce the effective supply available from the world's dominant nickel-producing country, regardless of headline quota levels. Simultaneously, the government's expanded role in transaction oversight adds a layer of regulatory risk that the market is still assessing. For investors, the combination of tightening supply fundamentals, cost inflation, and renewed M&A interest suggests a more supportive medium-term price environment - though near-term price ceilings appear to be a deliberate policy choice by Indonesian authorities. In junior mining, the divergence between companies with substantive technical work completed (such as Canada Nickel) and those trading on narrative momentum alone remains a key risk factor to monitor.

TL;DR: 

Indonesian nickel ore grades have fallen sharply, tightening effective supply and raising costs across the processing chain. The government is using quotas and a new sovereign oversight entity to manage both price and tax revenues. M&A activity is picking up in the sector, and emerging geological hydrogen technology pilots offer potential long-term optionality for nickel-bearing assets.

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