Nickel Rally Gains Strength on Indonesian Controls and Falling Inventories

• Nickel prices advanced to $19,200/ton, firmly within the $18,500-20,000 target range, driven by Indonesian supply constraints and declining LME inventories (down 4,000 tons this month)
• Indonesia asserting price management control through ore quotas (shifted from 3-year to 1-year allocations) and potential verbal intervention to maintain prices in the $20,000-21,000 range
• Sulfur costs surged to over $1,000/ton (up $100 recently, from $150 18 months ago), adding $1,000-1,200/ton to HPAL production costs and creating potential supply constraints if Strait of Hormuz remains closed
• Eramet’s Weda Bay operation placed on care and maintenance after exhausting its 12 million ton ore quota, representing a significant supply reduction in the Indonesian NPI market
• Stainless steel prices increased 4-5% this week, with restocking cycles expected to support healthy demand through year-end despite potential economic weakness

The nickel market has entered a new phase characterised by tightening supply conditions and deliberate price management by Indonesian authorities. After breaking out of the $17,000-18,000 trading range discussed in previous weeks, nickel prices have advanced to approximately $19,200 per ton, positioning firmly within the anticipated $18,500-20,000 target range. The market touched highs of $19,600 during the recent session, reflecting strengthening fundamentals across the supply chain.

This price movement represents more than cyclical volatility. According to Mark Selby, CEO of Canada Nickel, the market is experiencing "the beginning of the new normal" rather than a temporary squeeze. The structural changes implemented by Indonesia - the world's dominant nickel producer - have fundamentally altered the cost curve and supply dynamics that will support prices at elevated levels for the foreseeable future.

Indonesian Quota System Tightens Supply

A significant development affecting near-term supply is Eramet’s decision to place its Weda Bay mining operation on care and maintenance after exhausting its 12 million ton ore quota for the year. Weda Bay supplies the IMIP and IWIP operations, major components of the Tsingshan nickel production complex in Indonesia. While the company expects to secure additional quota allocation, the immediate supply reduction highlights the effectiveness of Indonesia's quota system in managing market balance.

Indonesia has implemented several strategic measures to control the nickel market, with the most significant being the shift from three-year to one-year ore quotas. This change provides authorities with greater flexibility to "dial up and dial down supply" on an annual basis, allowing more responsive management of market conditions. The quota system appears deliberately calibrated to support price appreciation while preventing excessive volatility that could destabilise the market or incentivise competing supply sources.

The Price Management Paradigm 

Indonesia's approach extends beyond physical supply controls to include potential verbal intervention in price discovery. Selby suggests that if prices advance too quickly through $20,000 toward $21,000 per ton, Indonesian officials may employ "moral persuasion" by signaling willingness to provide additional ore supply or expressing concern about excessive prices. The apparent target range of $20,000-21,000 per ton serves multiple strategic objectives: it provides attractive economics for Indonesian producers while remaining below the $22,000+ levels required to incentivise restarts of Western Australian operations or greenfield projects in other jurisdictions. As Selby noted, 

"Indonesia is serious about this, they are going to be managing prices and it's going to be good for those nickel producers going forward." 

This sentiment reflects growing market recognition that Indonesia has assumed a quasi-OPEC role in nickel, using its dominant market position to influence pricing through both supply management and strategic communication.

Rising Sulfur Costs Pressure HPAL Producers 

Rising input costs are reinforcing the higher price environment, particularly sulfur prices which have increased another $100 per ton to exceed $1,000 per ton - up from $150 just 18 months ago. For high-pressure acid leach (HPAL) producers, each $100 increase in sulfur costs translates to approximately $1,000-1,200 per ton in additional nickel production costs, creating substantial cost-push pressure supporting higher prices.

The sulfur market faces additional risk from the ongoing closure of the Strait of Hormuz, which accounts for approximately 25% of global sulfur supply and 75% of Indonesian imports. If the Strait remains closed for another one to two months, HPAL production could decline materially, potentially driving nickel prices "another couple thousand dollars a ton higher" according to Selby's analysis. Some HPAL producers are already managing production levels in response to sulfur availability constraints rather than running plants at full capacity.

Declining Inventories Signal Market Tightening 

LME nickel inventories continue their downward trajectory, declining 4,000 tons during the current month following a 6,000 ton reduction in the previous month. While Chinese inventories have shown some increase, the globally-watched LME warehouse stocks remain the primary market signal. The continued inventory drawdowns suggest the market is approaching balance after an extended period of surplus, with tightening conditions expected to intensify as the year progresses.

The decline in inventories is occurring despite the fact that approximately 80% of global nickel production - primarily nickel pig iron (NPI) and mixed hydroxide precipitate (MHP) - is not LME deliverable. However, the expansion of refining capacity in China and Indonesia now allows intermediate products to flow efficiently into various end markets, maintaining price relationships across different nickel forms within narrow ranges reflecting incremental conversion costs.

Stainless Steel Restocking Dynamics 

Stainless steel prices increased 4-5% during the week, with the trend expected to trigger restocking cycles throughout the supply chain. Because nickel represents a significant value component in stainless steel, price increases in the base metal typically prompt buyers to rebuild inventories in anticipation of further cost escalation. Selby expects "pretty healthy demand through the remainder of the year even if economic numbers are weak," as restocking behavior can sustain consumption independent of underlying end-use demand.

NPI and ore prices have remained firm throughout the price advance, with NPI prices continuing to move higher. Notably, despite nickel's rally from $14,000 per ton in December to current levels near $19,200, profit margins across the supply chain are only now beginning to exceed December levels due to the substantial increase in ore and intermediate product costs. This cost structure supports the sustainability of higher prices rather than suggesting an unsustainable speculative premium.

Canadian Policy Developments

In parallel with nickel market developments, the Canadian government announced creation of a $25 billion sovereign wealth fund dedicated to supporting major projects, including critical minerals initiatives. This follows Canada's establishment of actuarially-managed pension funds three decades ago and represents additional capital directed toward resource development.

Company Developments Signal Permitting Momentum and Technical De-Risking Across the Nickel Sector

Beyond macro and policy shifts, recent company-level developments highlight a sector increasingly defined by incremental technical progress and advancing permitting pathways rather than early-stage speculation. Mark Selby’s latest commentary underscores a broad pattern: projects moving closer to economic viability through metallurgy, regulatory alignment, and capital access.

At Canada Nickel Company, progress remains closely tied to policy tailwinds. The company’s flagship Crawford project has now been referred to both federal and provincial major projects offices, positioning it to benefit directly from Canada’s newly announced sovereign wealth fund. Management is targeting permitting milestones as early as summer 2026, a timeline that—if achieved—would materially de-risk the development pathway and potentially accelerate access to institutional capital.

For FPX Nickel, the key development is procedural but significant. The company has successfully submitted its initial project description and received a consolidated response from both federal and provincial regulators outlining requirements for its environmental impact statement. The shift toward a unified review process reduces duplication and timeline uncertainty—historically a major bottleneck for Canadian mining projects—and signals a more streamlined permitting environment for critical minerals.

At NexMetals Mining Corp., the focus is technical execution. Recent metallurgical work improved concentrate grades at its Selebi and Selkirk deposits from approximately 6.8% to 10.9%. This is a non-trivial step: sub-7% concentrate historically limited transport economics, effectively requiring on-site smelting. Moving toward double-digit concentrate grades expands potential offtake and processing options, directly impacting project economics and strategic flexibility—particularly for landlocked assets.

Meanwhile, Lifezone Metals continues to strengthen its funding and growth profile, securing an additional $25 million in equity and expanding its project footprint through regional acquisitions. This combination of capital inflow and asset consolidation suggests a strategy focused on scale and optionality, particularly in jurisdictions like Tanzania where infrastructure and processing integration remain key value drivers.

Finally, First Atlantic Nickel (recently renamed to include cobalt) reflects a broader thematic shift toward polymetallic exposure. Early-stage work at its Newfoundland awaruite deposit indicates cobalt as a potential by-product, which, while not transformative on its own, introduces additional revenue streams and strategic alignment with battery supply chains

Key Takeaways

The nickel market is undergoing a structural transformation driven by Indonesian supply management replacing traditional market-based price discovery. The combination of tightening ore quotas, rising input costs (particularly sulfur), declining inventories, and potential for verbal price intervention creates a fundamentally different pricing environment. Indonesia's strategic management appears designed to maintain prices in the $20,000-21,000 range - high enough to ensure attractive returns for domestic producers while discouraging new supply from competing jurisdictions. 

Rising costs across the supply chain provide fundamental support for elevated prices, while the shift to annual quotas gives authorities responsive tools to manage market balance. For investors, this represents a transition from cyclical nickel price volatility to a managed market structure with implications for both Indonesian producers and Western projects requiring higher price thresholds for economic viability.

TL;DR

Indonesian quota management and rising sulfur costs ($1,000+/ton) are driving nickel prices to $19,200 with targets of $20,000-21,000, representing a structural shift toward price management rather than market discovery. Declining LME inventories (down 10,000 tons over two months), Eramet’s Weda Bay care-and-maintenance, and stainless steel restocking cycles support sustained price strength. Indonesia's move to one-year quotas provides responsive supply control while cost-push inflation across the supply chain reinforces the higher price environment.

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