How Indonesia's Nickel Dominance & Western Security Concerns Are Reshaping Investment Opportunities

• The nickel market is currently trading sideways (around $15,400/ton range), with direction expected post-Chinese New Year; Indonesia's decisions about supply management will be critical for price movement.
• Indonesia and China dominate global nickel production (75% in 2024), with Indonesia up 14% and China up 6%, while the rest of the world's production dropped by 9%.
• Western governments and companies are seeking nickel supply outside the Indonesia-China axis, creating opportunities for projects like Canada Nickel Company's Crawford and other Western developments.
• Several former nickel-focused companies are diversifying or pivoting to other metals, indicating potential consolidation around the strongest remaining nickel projects.
• Mark Selby believes nickel prices could move closer to $20,000/ton in 2024, as Indonesia may manage ore supply more strategically to create higher value.

The Strategic Metal at a Crossroads

Nickel stands at a fascinating inflection point in early 2025. This critical metal, essential for stainless steel production and increasingly vital for the energy transition through its role in battery manufacturing, faces unique market dynamics shaped by geopolitical forces, supply concentration, and shifting industrial demands. For investors looking beyond the mainstream commodities, nickel presents an intriguing opportunity characterized by strategic importance, supply constraints, and potential price normalization.

The metal has seen its price trade sideways in recent months, hovering around $15,400 per ton, with analysts waiting for clearer direction after Chinese New Year celebrations. However, beneath this apparent stability lies a complex and rapidly evolving landscape that deserves investor attention, particularly for those with a medium to long-term horizon who appreciate the growing strategic importance of critical minerals.

The Battery Show, with Mark Selby, CEO of Canada Nickel

The Indonesia Factor: A New OPEC for Nickel?

The single most important dynamic reshaping the nickel market is Indonesia's overwhelming dominance of global supply. According to the International Nickel Study Group (INSG), Indonesia's nickel mine supply increased by 15% in recent reporting, with combined Indonesia-China nickel production growing by 12%. Meanwhile, the rest of the world's nickel production dropped by 9% during the same period. Mark Selby, CEO of Canada Nickel states:

"Indonesia to date has been building out the capacity to be able to dominate supply, which they have done. They have a significantly much larger share than OPEC did at its peak in the early 1970s."

This concentration of production gives Indonesia extraordinary power to influence global nickel prices. Currently, Indonesia and China together account for 75% of global finished nickel production in 2024, with this percentage projected to increase further by year-end. This level of market control exceeds what OPEC achieved at the height of its influence over global oil markets, creating what amounts to a de facto "OPEC of nickel."

Indonesia's strategy appears to be evolving from capacity building to value maximization. The country has already implemented an ore export ban to encourage domestic processing, requiring mining companies to build processing facilities in-country. This reflects Indonesia's desire to maximize value from its limited resources rather than simply exporting raw materials.

Recent signals suggest Indonesia may restrict nickel ore supply to 200-225 million tons, significantly less than the 289 million tons of licenses granted for 2024. After Chinese New Year, ore prices ticked up 5%, potentially indicating that Indonesia recognizes the opportunity to manage supply more strategically for price support.

Supply Constraints Outside the Indonesia-China Axis

While Indonesia and China expand production, the rest of the world's nickel sector faces significant challenges. Production outside these two countries fell by 9% as various closures announced last year continue to ripple through the market. This divergent trend highlights the economic pressures facing Western producers operating in a price environment significantly below what many operations require for profitability.

Several formerly nickel-focused companies are pivoting to other metals. Power Nickel has rebranded as Power Metallic to reflect its focus on high-grade copper and platinum group metals. Poseidon Nickel is merging with a gold company and repurposing its Silver Swan Mill in Western Australia from nickel to gold processing. These moves further reduce Western nickel processing capacity and concentrate the remaining industry around fewer, more resilient players.

The cost pressures in the industry are significant. Selby notes that many operations that shut down last year would need sustained nickel prices of $22,000-24,000 per ton to become economically viable again. This suggests that current price levels around $15,400 are unsustainable for a significant portion of global production outside the Indonesia-China axis.

The supply constraints outside Indonesia are compounded by very few significant new nickel discoveries and the long lead times required to bring new projects online. Most major new projects do not expect production until the early 2030s, creating a potential supply gap in Western markets during this decade.

Geopolitical Dimensions: Western Strategic Concerns

The concentration of nickel production in Indonesia and China has elevated nickel to a matter of strategic concern for Western governments. The geopolitical dimensions of nickel supply are becoming increasingly important in investment considerations.

"Western and European governments want China out of the supply chain, being dependent on Indonesia and China for material as critical as nickel. With Trump, we've already seen China ratcheting up the limits on various other minerals. Nickel hasn't quite got there yet, but with the domination they have, it's now completely within their grasp."

This strategic concern is reflected in recent corporate movements. MMG, a Chinese-backed company, recently acquired Anglo American's nickel business in Brazil, further concentrating global nickel assets under Chinese influence. This acquisition reinforces Western concerns about supply chain dependence and strengthens the investment case for developing nickel resources in politically stable jurisdictions aligned with Western interests.

The geopolitical dimension may support premium valuations for projects in countries like Canada, Australia, and other Western-aligned nations, as governments and end-users seek to diversify supply chains and reduce dependence on China and Indonesia. Government support, through direct investment, loan guarantees, or off-take agreements, could become increasingly important for projects in these jurisdictions.

Technological Advancements: Unlocking New Resources

Innovation in processing technologies is creating opportunities to develop nickel resources that were previously uneconomic or technically challenging. These advancements could change the supply landscape over the medium to long term.

FPX Nickel's recent progress with ultramafic nickel deposits demonstrates the potential to produce high-value nickel products from resources previously considered difficult to process. The company has shown it can produce saleable nickel sulfate from awaruite concentrate with relatively low capital requirements of around $400 million, highlighting the value proposition of these deposits.

Even more unconventional resources are advancing toward commercial viability. The Metals Company has made significant progress in processing polymetallic nodules from the ocean floor, successfully producing a nickel-cobalt-copper alloy and a silicon-manganese product at commercial scale using existing processing facilities. While these nodules contain only 1-1.5% nickel, they represent a potentially significant new source of supply outside traditional mining jurisdictions.

Canada Nickel Company's Crawford project represents one of the largest undeveloped nickel resources globally, with the company highlighting that the combined resource base from its portfolio could exceed the total nickel endowment of the historic Sudbury basin in Canada. The company's focus on ultramafic nickel deposits could allow for simpler processing routes to produce materials suitable for various nickel applications.

The Price Outlook: Potential for Normalization

The current nickel price environment appears unsustainable when considering the economics of production outside Indonesia. A significant portion of global capacity requires prices in the $22,000-24,000 per ton range to operate profitably, suggesting potential upside from current levels around $15,400. Selby predicts:

"From my perspective, Indonesia is just leaving free money on the table by not pushing prices higher. They've been pretty smart so far in terms of extracting investment, extracting value for the country from those nickel resources to date. And I think we'll see them flex their OPEC muscle this year and push prices a little bit higher."

His forecast suggests prices could move closer to $20,000 per ton during 2024, reflecting Indonesia's growing understanding of its market power and the economic benefits of strategic supply management. This price level would support some Western projects while still allowing Indonesia to maintain its competitive advantage.

The significant drawdown in nickel inventories and ore stockpiles reported by the INSG also suggests that the market fundamentals may be tighter than current prices indicate. Demand growth remains robust, with the INSG forecasting a 5% increase, matching the overall production growth but potentially creating regional imbalances as Western production continues to decline.

Investment Options: A Narrowing Field

The nickel investment landscape has narrowed considerably in recent years, concentrating around a small group of advanced projects with credible paths to production. This consolidation presents both challenges and opportunities for investors.

Selby identifies four key projects that have continued to advance toward production despite market challenges: Centaurus in Brazil, Dumont (privately held by Kintera), FPX Nickel, and Canada Nickel's Crawford project. These companies have made progress on permitting, feasibility studies, and attracting cornerstone investors.

For investors seeking exposure to nickel, several approaches merit consideration:

• Pure-play nickel developers with projects in Western jurisdictions who have demonstrated technical and financial progress toward production represent direct exposure to potential price recovery.
• Diversified mining companies with significant nickel operations offer more balanced exposure to nickel upside while mitigating single-commodity risk.
• Battery material ETFs and funds provide indirect exposure to nickel as part of the broader energy transition metals theme.
• Physical nickel or nickel futures for sophisticated investors comfortable with the complexities of commodity trading.

Risks and Challenges: Eyes Wide Open

While the nickel investment thesis has compelling elements, investors must recognize several significant risks.

Indonesia's supply management remains uncertain. If the country prioritizes volume over price, continuing to issue and utilize the full extent of its production licenses, oversupply could persist, keeping prices depressed.

Chinese demand, which drives a significant portion of global nickel consumption, faces uncertainties related to economic growth rates and the pace of energy transition adoption. Slower-than-expected EV uptake or economic growth could impact nickel demand forecasts.

Technological substitution poses another risk. Battery manufacturers continue to develop chemistries that reduce or eliminate nickel content, potentially limiting demand growth from the EV sector.

Development risks for new projects remain substantial. Capital requirements for new nickel projects are significant, and permitting timelines can be lengthy and uncertain, creating execution risk for developers.

The Opportunity in Strategic Resources

Despite these challenges, nickel's strategic importance in both traditional industries and the energy transition creates a compelling long-term investment narrative. The metal sits at the intersection of geopolitical concerns, industrial necessity, and technological innovation.

The concentration of production in Indonesia and China has elevated nickel from merely an industrial metal to a resource of strategic importance. Western governments' growing focus on securing critical mineral supply chains could translate into support mechanisms that enhance the economics and accelerate the development of projects in friendly jurisdictions.

For patient investors who understand the cyclical nature of commodity markets, the current period of price pressure and industry consolidation may present opportunities to establish positions in quality projects at valuations that do not fully reflect their strategic value or long-term potential.

The growing dichotomy between nickel supply in Indonesia/China and the rest of the world creates a two-tier market that may eventually be reflected in premium pricing for Western-produced material, particularly for applications where supply chain security is prioritized over absolute cost.

Conclusion: Strategic Positioning for the Next Cycle

Nickel presents an intriguing opportunity for resource investors with a strategic mindset and sufficient patience. The metal's unique market structure, dominated by Indonesian and Chinese production but deemed strategically important by Western governments and industries, creates potential for significant price normalization and premium valuations for projects in Western jurisdictions.

The narrowing field of viable projects following industry consolidation provides clearer investment options, allowing investors to focus on a select group of companies with credible development paths. While risks remain substantial, the strategic importance of nickel in both traditional industries and the energy transition provides a solid foundation for long-term demand.

For investors seeking exposure to the critical minerals narrative beyond the more crowded lithium and copper spaces, nickel offers an alternative with similar strategic drivers but potentially more favorable entry points given current price pressures and industry restructuring.