Indonesia’s Supply Squeeze Sparks Nickel Rally as EV Sales With Falling Ore Grades

• Indonesian supply management drives nickel prices up $2,200/ton: Multiple policy measures including mining license restrictions, forestry enforcement, and a ban on new processing plants have pushed nickel from $14,200 to $16,500/ton since mid-December 2025.
• Strong global EV sales momentum continues: Despite US setbacks, global EV sales grew 21% through November 2025, with Europe up 33%, China up 19%, and rest-of-world up 48%, supporting long-term nickel demand fundamentals.
• Canada Nickel's Crawford project gains major government backing: Designated as a National-Building Project by Prime Minister Mark Carney, with construction targeted for year-end 2026, supported by dedicated federal financing and permitting assistance.
• Timmins Nickel District emerges as multi-decade opportunity: Canada Nickel now has 8 resources totaling over 20 million tonnes of contained nickel, positioning the district for potential consolidation by major mining companies seeking long-term supply.
• Market analysts significantly underestimating fundamentals: INSG forecasts 300,000-ton surplus for 2025, yet exchange inventories only increased 100,000 tons, suggesting substantial reporting discrepancies as Indonesian ore grades decline.

After months of stagnation in the nickel market, significant price movement and policy shifts signal a potential turning point for the industry. Mark Selby, CEO of Canada Nickel, provided a comprehensive update on nickel market dynamics in late December 2025, highlighting Indonesia's deliberate supply management strategy, stronger-than-expected electric vehicle demand, and advancing development projects across North America. For investors in nickel-exposed companies, these developments represent a fundamental shift from the Chinese-controlled price suppression that characterised much of 2025 and early 2026.

Indonesian Government Asserts Control Over Nickel Supply

The most significant development in the nickel market has been Indonesia's coordinated series of policy announcements designed to manage supply and increase value capture from its dominant position as the world's largest nickel producer. Indonesia controls approximately two-thirds of global nickel supply, and the government has taken increasingly assertive steps to exercise that control.

Beginning in August 2025, Indonesia reduced mining licenses from three-year terms to one-year terms explicitly to "manage supply." In September, authorities closed multiple smaller mines for forestry practice violations and implemented substantial fines on a per-hectare basis for similar violations in December. Most significantly, in late November 2025, the Indonesian government announced a ban on new HPAL (high-pressure acid leaching) and NPI (nickel pig iron) processing plants, stating that only further downstream processing facilities would be approved going forward.

These policy measures are not arbitrary reactions but rather calculated responses to a fundamental resource challenge. Saprolite ore grades in Indonesia, which are used for NPI and matte production representing half of global supply, have declined by double-digit percentages compared to a year ago. While HPAL ore output and grades continue to ramp up, the overall trend of declining ore grades necessitates more strategic resource management.

Selby noted that these Indonesian moves represent a multi-year evolution in the country's approach to its nickel resources. A decade ago, Indonesia banned ore exports, forcing Chinese companies that had built significant processing capacity in China to relocate and build new capacity within Indonesia. When Chinese smelters subsequently colluded to suppress ore prices, Indonesia implemented minimum pricing mechanisms tied to London Metal Exchange prices. The current supply management measures represent the latest phase in Indonesia's strategy to maximise value from its finite nickel resources.

Nickel Price Recovery & Future Trajectory

The market's response to Indonesian policy signals has been substantial. Nickel prices moved from approximately $14,200 per ton in mid-November to $16,500 per ton by late December, representing an increase of over $2,200 per ton or roughly $1 per pound. This recovery comes after prices spent most of 2025 trading in a narrow range between $15,000 and $15,500 per ton.

Selby observed that the timing of the November price suppression was notable, coinciding with Indonesia's announcement of the processing plant ban and the Canadian government's designation of Canada Nickel's Crawford project as a major national project. He suggested this may have represented a final attempt by Chinese industrial interests to signal their influence over the market.

Looking forward, Selby projects nickel prices will advance to the $18,200-$18,500 range, with further upside potential toward $19,500-$20,000 per ton. He expects prices will need to consolidate in the current $16,000-$16,500 range before making the next move higher, particularly as January through March represents the seasonal low point for Philippine ore production, which drops to approximately one-quarter of its peak third-quarter levels.

The price trajectory reflects Indonesia's strategic positioning. Selby indicated that if he were managing Indonesia's nickel resources, he would continue pushing prices higher to gauge the supply response from other jurisdictions. At $20,000 per ton, many new projects become economically viable, though legacy operations at BHP, Vale, and other century-old mines may struggle with profitability at those levels.

Persistent Disconnect Between Analyst Forecasts & Market Reality

A recurring theme in Selby's analysis is the substantial gap between official forecasts and observable market fundamentals. The International Nickel Study Group (INSG) has reported a surplus running at nearly 300,000 tons per year for 2025. However, total exchange inventories across all exchanges amount to just under 300,000 tons, having increased by only 100,000 tons during 2025 and by merely 10,000 tons during November and December when the supposed surplus was running at 60,000 tons.

Selby expressed frustration that if significant surplus inventory existed, market participants who are short nickel would be documenting and publicising warehouse stockpiles with photographs and data. The absence of such evidence, combined with the minimal inventory builds, suggests the INSG figures substantially overstate actual surplus conditions. He predicted that within 12 months, these organisations will quietly restate historical figures to reconcile the discrepancies, as has occurred in previous cycles.

This analytical gap has important implications for investors, as many financial institutions and analysts base their nickel market views on these official but apparently flawed assessments. The disconnect creates opportunity for investors who focus on observable fundamentals rather than published forecasts.

Mark Selby, CEO of Canada Nickel Corp

Electric Vehicle Demand Remains Robust Despite US Policy Shifts

Counter to narrative concerns about weakening electric vehicle demand, global EV sales through November 2025 showed continued strong growth. Worldwide EV sales reached 18.5 million units, up 21% year-over-year. Europe, which had been characterised as facing a demand crisis a year earlier, posted 3.8 million units sold, representing 33% growth. China maintained solid growth at 19% with 11.6 million units, while the rest of world outside North America surged 48% to 1.5 million units.

North America was the sole weak spot, declining 1% as the Trump administration reversed various EV support programs. However, Selby noted that the administration simultaneously strengthened Chinese content restrictions, which benefits North American and European nickel suppliers by forcing automakers to source materials outside China's supply chain.

Selby acknowledged that Europe's 33% growth figure includes some distortion from subsidy-related demand timing shifts across 2023, 2024, and 2025, suggesting the underlying growth rate is closer to 20-25%. Nevertheless, this represents healthy expansion that supports nickel demand, particularly for nickel-intensive battery chemistries required for premium and long-range vehicle segments. Lithium iron phosphate (LFP) batteries, which don't contain nickel, are gaining market share but cannot serve all vehicle segments.

Selby also drew a comparison to copper markets, noting that copper is trading near all-time highs despite running surpluses in both 2024 and 2025. At elevated copper prices, significant scrap flows will enter the market, and Chinese refined production somehow continues expanding faster than concentrate supply growth. This observation underscores that nickel's fundamental supply-demand balance may actually be tighter than copper's, yet nickel remains undervalued relative to its fundamentals.

Canada Nickel Advances Toward Construction in 2027

Canada Nickel received significant validation in December 2025 when Prime Minister Mark Carney designated the company's Crawford project as a National-Building Project, with Carney stating it "will anchor Canada's global leadership in clean industrial materials" and "set the global standard for the future of responsible mining." The company is targeting year-end 2026 to begin construction.

This designation provides more than rhetorical support. The Canadian government has established a major projects office specifically to facilitate financing and permitting for designated projects. Selby emphasised that both Carney and Natural Resources Minister Tim Hodgson, both former investment bankers with Goldman Sachs backgrounds, have clear incentives to demonstrate tangible results from the program within 18 months by pointing to projects that have moved from designation to construction.

From a financing perspective, significant components of Crawford's capital stack are already in place through existing government programs, with the major projects designation providing additional certainty around the remaining pieces. On permitting, Selby noted that while the timeline from Crawford's current stage to breaking ground would historically have required two to three years, both federal and provincial governments have committed to completing entire projects' permitting processes within two years, suggesting the final permitting steps for Crawford should be achievable within 12 months.

Canada Nickel has also announced two additional resources at Bannockburn and Midlothian, bringing the company's total to eight resources in the Timmins Nickel District with over 20 million tonnes of contained nickel across all categories. Selby indicated that Crawford represents the company's first project, but three or four other properties - including Reid, Mann West, and potentially Midlothian - are expected to be larger and better projects than Crawford itself.

The Timmins Nickel District Consolidation Thesis

Beyond the Crawford project's individual merits, Selby articulated a district consolidation thesis that represents substantial upside potential for Canada Nickel shareholders. The company has successfully drilled 18 targets and developed eight resources, with multiple properties still untested. The company's strategy involves using the engineering template developed for Crawford and essentially replicating it across other deposits in the district, similar to how First Quantum Mining in the early 2000s created shareholder value by standardising one sulfide processing line and one oxide processing line and applying them across multiple African operations, delivering projects 30% cheaper and 25% faster than competitors.

Selby suggested that once Crawford achieves a valuation re-rating as it advances toward construction, the district's full potential becomes visible to strategic acquirers. He noted that Crawford alone is worth "a couple billion dollars" while Canada Nickel's current market capitalisation sits around C$300 million, representing a significant valuation gap.

For district consolidation to occur, Selby noted that Canada Nickel only needs two major mining companies to decide they want ownership. In a competitive bidding environment between major producers seeking long-term nickel supply in a premier jurisdiction with full infrastructure and community support, valuations can significantly exceed single-project net asset values.

Other Nickel Development Activities

Several other nickel projects are advancing toward development decisions-

‍Lifezone Metals continues progressing its Kabanga project in Tanzania toward a 2026 final investment decision. Selby emphasised that both Crawford and Kabanga represent less than 1% of the global nickel market each, underscoring that the market can accommodate multiple new projects. Benchmark Minerals estimates that even if only half the planned battery plants in the United States get built, they would require 300,000 tons of nickel annually - equivalent to ten Crawford or Kabanga phase-one operations.

Talon Metals completed a strategic transaction with Lundin Mining, acquiring Lundin's Eagle mine and mill operation in Michigan and Minnesota as the mine approaches the end of its life in a few years. Lundin became a 19.9% shareholder in Talon and is absorbing all closure costs. The transaction provides Talon with a permitted mill and tailings facility - among the most valuable assets in the United States - located near Talon's exploration properties. However, Selby cautioned on valuation, noting that Talon's market capitalisation exceeds $700 million while Lundin acquired the half-built Eagle mine with a 250,000-ton reserve from Rio Tinto for $400 million in 2014.

Sherritt International faced activist investor pressure resulting in management and board changes. Selby described the company as "watching a car wreck in slow motion over 12 years," hampered by its Cuban operations which create challenges with US investors. 

First Atlantic Nickel continues expanding its Newfoundland deposits, with recent drilling returning the highest magnetically recoverable nickel grades to date. 

SPC Nickel reported acquiring a project in Nunavut originally explored by Inco in the 1960s-70s, with surface sampling showing grades up to 18.15% copper, 97.90 g/t palladium, 11.65 g/t platinum, and 4.89 g/t gold - a long-term exploration opportunity worth monitoring.

Investment Implications

The nickel market is undergoing a fundamental transition from Chinese industrial price suppression to Indonesian government supply management, with material implications for pricing and project economics. Indonesia's series of policy measures throughout 2025 represent calculated responses to declining ore grades and a strategic imperative to maximise value from finite resources. The resulting price recovery from $14,200 to $16,500 per ton appears to be the beginning of a multi-stage advance toward $18,500-$20,000 per ton.

For investors, several key points emerge from this analysis. First, official surplus forecasts from organisations like INSG appear substantially overstated based on observable inventory data, creating analytical blind spots for institutions relying on these figures. Second, global EV demand remains robust outside the United States, with underlying growth rates of 20-25% supporting long-term nickel demand despite LFP battery penetration. Third, nickel projects in premier jurisdictions with government support - particularly those with district-scale potential like Canada Nickel's Timmins properties - offer asymmetric value propositions as nickel "stops being out of favor" even if it doesn't necessarily enter a super-cycle.

The Indonesian supply management strategy appears sustainable because it aligns with resource constraints and has been implemented gradually through multiple policy levers rather than single dramatic actions that could trigger immediate retaliation. Combined with strengthening demand fundamentals and a pipeline of projects that require $18,000-$20,000 per ton to achieve attractive returns, the nickel market setup for 2026 appears materially different from the suppressed conditions that characterised much of 2024 and 2025. Investors in well-positioned nickel development companies with government backing, infrastructure access, and district-scale potential may benefit from both near-term price recovery and longer-term strategic consolidation dynamics.

TL;DR

Indonesia's deliberate supply management measures have driven nickel prices up $2,200/ton to $16,500, with further upside to $18,500-$20,000 expected as declining ore grades constrain supply. Strong global EV growth (21% through November 2025) supports demand despite US weakness, while major nickel projects like Canada Nickel's government-backed Crawford are advancing toward 2026 construction decisions. The combination of Indonesian pricing discipline, underappreciated demand fundamentals, and district consolidation potential creates asymmetric opportunity in well-positioned development companies.

FAQ's (AI Generated)