Indonesia poised to cut nickel ore quota further

Indonesia, the world’s largest nickel producer, looks poised to trim output even more than indicated this month in an attempt to prop up prices.

Southeast Asia’s most populous country could reduce its nickel ore production quota for this year to between 150 million and 200 million tonnes, the Financial Times reported this week, citing the country’s Ministry of Energy and Mineral Resources.

Tri Winarno, director general of mineral and coal at the country’s mining ministry, had originally announced a quota of 200 million tonnes in early January – a drop from the 240 million tonne maximum that was supposed to remain in place until 2026. He warned that the quota could be cut further if miners failed to comply with environmental and other regulations.

“This represents a stark decrease from the 215 million tonnes of ore extracted in 2024, and appears to represent Indonesia’s desire to keep prices in their targeted range of US$15,000-18,000/tonne,” BMO Capital Markets analyst George Heppel wrote Thursday in a note to clients.

Nickel prices have slumped sharply since 2022 amid a widening production glut – most of which is due to rising output from Indonesia. Lower metal prices, combined with significant cost inflation across the mining sector, have forced many producers outside Indonesia to suspend operations. 

Price plunge

Last year the annual average London Metals Exchange price for the silvery-white metal plunged 22% year-on-year to US$16,812 per tonne. Nickel is up about 2.4% this year through Thursday, trading at US$15,660 per tonne.

News of the quota reduction comes as Indonesia prepares to revise the country’s mining law, following a pledge by President Prabowo Subianto to speed up development of the mineral processing industry. One of the proposed changes would see companies being given priority access to mining areas for “downstreaming” purposes.

Indonesia holds the largest nickel reserves on the planet. Last year the country produced 63% of the world’s nickel, up from 28% in 2020 – a share could easily rise to 75% within the next three to five years, according to Jim Lennon, a London-based managing director of commodities at Australia’s Macquarie Group.

Between 2020 and 2024, Indonesia added 1.5 million tonnes of new supply to the market. Last year it churned out 2.25 million tonnes of nickel (finished and intermediates), a 16% year-on-year increase.

Newly released data by the Lisbon-based International Nickel Study Group show that mined nickel production increased 6% in November from a year earlier to 4.1 million tonnes per year. That’s the highest monthly level since September 2023.

Global primary nickel supply gained 4% in November to 3.8 million tonnes per year while demand rose 5% to 3.5 million tonnes, the intergovernmental organization said. This resulted in an apparent surplus of 296,000 tonnes for November.

Nickel is mostly used in the making of stainless steel and other alloys. Indonesia is the world’s second-largest producer of stainless steel.