$XNI Rebalancing in the Nickel Market: Indonesia's Supply Discipline and Industrial Demand

Nickel is trading at $16,275, down a slight 0.07% in the last 24 hours. Behind this calm picture lies a market that rose to $19,675 in the first half of the year, then fell to $15,620, and is now seeking rebalancing. This volatility on the weekly chart summarizes the transformation nickel is undergoing throughout 2026.

At the heart of this transformation is Indonesia. Controlling more than 60% of the global nickel ore supply, the country has reduced its production quota from 379 million tons in 2025 to 250-260 million tons for 2026. This 34% cut aims to eliminate the structural supply surplus that the market has struggled with for years. The impact of the quota reduction hasn't been limited to paper. Weda Bay, one of Indonesia's largest mines, was taken into maintenance and repair mode at the end of May after exhausting its quota. This has been a concrete indication that the policy is indeed restricting physical production.

Data from the International Nickel Study Group (INSG) clarifies the extent of the supply-side contraction. Global primary nickel production is projected to fall from 3.88 million tons in 2025 to 3.715 million tons in 2026. This 4.3% decrease marks the first annual production decline since 2015. On the demand side, primary nickel consumption is projected to increase by 4.2% to 3.747 million tons. This equation means that the 283,000-ton supply surplus in 2025 will turn into a 32,000-ton deficit in 2026. The market is shifting from surplus to equilibrium, or even partial tightness.

The supply constraint is not limited to mining quotas. Disruptions in sulfur supply have increased the cost of battery-grade nickel production. Due to the conflict in the Middle East, sulfur prices rose from $300 per ton to over $1,000. Indonesia's new HPM pricing mechanism also increased the ore price floor, raising production costs. Combined, these factors increased the cost floor for nickel, reducing its downward price elasticity.

Demand, however, is mixed. Stainless steel remains the largest contributor to nickel demand. Stainless steel production is increasing in China, but primary nickel demand remains limited due to rising scrap usage. On the battery side, there is a structural shift. While lithium-iron-phosphate (LFP) batteries are expanding their market share, demand for nickel-rich NMC chemicals is increasing slower than expected. Nevertheless, the increasing share of high-nickel 316 grade stainless steel and the recovery in the battery sector are supporting demand.

The situation in LME inventories highlights the fragility of the market. As of September 18th, LME nickel inventories stood at 278,826 tons. While this figure is historically high, the geographical distribution and availability of stocks are decisive in price formation. Stocks are expected to dwindle as long as Indonesia maintains its supply discipline.

Price forecasts for 2026 reflect the balance between supply discipline and demand uncertainty. Goldman Sachs forecasts an average of $17,200/ton, based on Indonesia's supply constraints. BMI, however, offers a more cautious forecast of $15,800/ton. CRU Group describes 2026 as a "rebalancing year" and predicts a 1.5% decrease in supply. Nornickel states that the supply surplus will shrink to 20,000 tons, but could rise again to 55,000 tons in 2027. The common denominator in these forecasts is that Indonesia's policy choices will determine the fate of the price.

Nickel is supported by supply discipline on one hand, but limited by changes in battery chemistry and macroeconomic uncertainties on the other. Whether Indonesia will ease its quota, when sulfur supply will return to normal, and how battery demand will evolve are three critical variables that will determine the price direction in the coming months.

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