Recently, Indonesia's Ministry of Energy and Mineral Resources (ESDM) Directorate General of Mineral and Coal sent a signal impossible for global markets to ignore: the 2026 nickel ore production quota (RKAB) target will be sharply reduced from 379 million tons in 2025 to approximately 250-260 million tons, a decline exceeding 34%. Although the final figures remain to be finalized and companies can apply for supplementary quotas until July 31, 2026, the direction of policy tightening is already clear.

This is not an isolated administrative adjustment but a “combination of measures” involving quota reductions, system optimization, and cost increases. Starting in 2026, Indonesia will reinstate the annual approval mechanism for RKABs, replacing the three-year approval model implemented since 2023. This aims to enhance the government's annual control over the pace of resource outflows. Consequently, future quota sizes can be flexibly adjusted based on nickel price fluctuations and domestic industrial demand.

More crucially, allocation rules are being reshaped. Under the new mechanism, quotas will be strictly calculated based on “smelting capacity × unit ore consumption coefficient,” ensuring ore output does not exceed domestic absorption capacity. Integrated mining-smelting projects will receive priority approval, while non-integrated enterprises must provide explicit purchase agreements with domestic smelters. Companies with strong historical compliance records and no major environmental or safety violations will receive higher weighting in the approval process.

Meanwhile, pressure is quietly mounting on the cost side. Indonesia is revising its Nickel Ore Benchmark Price (HPM) formula, for the first time treating cobalt as a separate commodity and imposing a 1.5%-2% royalty. Additionally, the government will intensify crackdowns on illegal mining and land violations, seizing mining sites and imposing heavy fines on enterprises to further squeeze gray-market supply. These measures collectively point toward a core objective: shifting from “selling ore” to “controlling the supply chain.” .

From Expansion to Value Enhancement:

The Deep Shift in Indonesia's Nickel Strategy

Behind this policy storm lies a fundamental transformation in Indonesia's nickel industry development logic. Over the past seven years, through strong policies like banning raw ore exports, Indonesia successfully attracted substantial capital—including Chinese investment—to build smelting capacity. Nickel production surged nearly fivefold in five years, rapidly elevating the country to a dominant global supplier.

Yet rapid expansion brought unintended consequences. From 2022 to November 2025, LME nickel prices plummeted 46%, severely eroding industry profits and straining mining revenues. Indonesia recognized that relying solely on capacity expansion was unsustainable. Today, its strategic focus has shifted from “expanding capacity and attracting investment” to “stabilizing prices and enhancing resource value-added.”

The broader vision lies in extending the industrial chain. Indonesia no longer seeks to be merely the world's “raw material warehouse” for stainless steel and battery components. Instead, it aims to establish new energy vehicle manufacturing domestically, building a complete ecosystem spanning “mining—smelting—precursors—batteries—complete vehicles.” This transformation hinges on preventing prolonged nickel price weakness and ensuring resource development yields higher comprehensive returns. Production quotas and price stabilization serve as the pivotal fulcrum for this strategic pivot.

Finished Goods Soar, Ore Prices Lag:

Why Has Price Transmission Malfunctioned?

The market reacted swiftly to policy signals. Starting mid-December 2025, driven by expectations of quota cuts, nickel prices embarked on a strong rebound. On January 26, 2026, LME nickel hit a daily high of $19,160 per ton; Shanghai nickel futures simultaneously surged to ¥152,300/ton, marking an unprecedented rally in recent years.

However, a puzzling phenomenon emerged: despite widespread price increases for finished products like stainless steel, nickel sulfate, and electrolytic nickel, spot nickel ore prices showed no significant movement. While product margins improved markedly, the price transmission chain appeared to “jam.”

This divergence—where finished goods prices rise while ore prices remain stable—essentially reflects the disconnect between financial and industrial attributes. The futures market reacts highly sensitively to mid-term supply tightness, pricing rapidly driven by sentiment. Meanwhile, the ore side is constrained by complex supply-demand structures, relatively rigid pricing mechanisms, uncertainties in policy implementation, and pressure from downstream oversupply, leading to delayed or even dulled price responses.

More critically, the supply gap may exceed expectations. According to Indonesia's Nickel Industry Forum projections, local smelters will require approximately 340-350 million tons of nickel ore by 2026. Based on a 260 million ton quota target and considering an actual mining rate of about 90%, the supply gap could exceed 100 million tons. Even significantly increasing nickel ore imports from the Philippines (which exported approximately 15 million tons to Indonesia in 2025) would struggle to fully bridge this gap. Should a large number of smelters be forced to reduce capacity or halt production, downstream cost pressures would rapidly cascade to end consumers, creating a new negative feedback loop.

The Allocation Rules Hold Hidden Complexities:

Who Benefits? Who Bears the Burden?

While the policy direction is clear, the implementation details ultimately determine a company's fate. Currently, RKAB approvals reveal a distinct prioritization logic: integrated projects take precedence, operational projects receive priority, and high-value-added pathways are favored.

Indonesia's current stainless steel capacity stands at approximately 8.8 million tons, with nickel sulfate production between 200,000 and 250,000 tons and electrowinning nickel under 200,000 tons. Combined, these operations require less than 10 million tons of nickel ore to meet full production capacity (though most facilities currently operate below capacity). The remaining quota of approximately 130 million tons will primarily support intermediate product production, including ferronickel, nickel matte, and MHP (Mixed Hydroxide Precipitate). Based on government preferences, the priority sequence of MHP > nickel matte > ferronickel has largely been established.

This implies that MHP and hydrometallurgical projects employing high-pressure acid leaching (HPAL) technology are highly likely to receive full quota allocations, while traditional ferronickel capacity may face significant contraction. On January 20, Vale Indonesia, a major Indonesian miner, admitted that it received approval for only about 30% of its requested quota. This raises concerns about its ability to fulfill ore supply commitments to multiple HPAL projects on Sulawesi Island—projects that are central to Indonesia's strategy for developing high-value-added battery materials.

Cost structures also determine viability. Across the entire chain, Indonesian MHP carries the highest costs, followed by the newer ice nickel process, while traditional ferronickel holds the strongest cost advantage. However, under policy傾斜, low cost does not necessarily equate to high priority. Moving forward, ferronickel output contraction appears almost inevitable, while nickel salts and pure nickel supply may maintain modest growth, resulting in a significant overall decline in nickel element supply.

Yet, demand-side weakness remains a sword of Damocles. The stainless steel sector persists in a slump, while the power battery market is dominated by lithium iron phosphate, leaving high-nickel ternary batteries unlikely to see explosive growth in the short term. If “supply contraction” lacks the support of “demand recovery,” the nickel market risks falling into the awkward predicament of “rising prices amid shrinking volumes.”

How to navigate nickel price volatility?

Indonesia's “production cut hammer” is fundamentally reshaping the global nickel market's rules. By 2026, the nickel price center is highly likely to shift significantly upward. The author anticipates Shanghai nickel prices will range between 120,000 and 170,000 yuan per ton, while LME nickel prices will fluctuate between 15,000 and 20,000 USD per ton.

However, investors should guard against “overheated expectations.” Current nickel inventories remain elevated, and price increases could trigger the emergence of hidden stockpiles. Short-term destocking will be challenging, presenting substantial upward resistance. More critically, if downstream demand remains sluggish, a “market without transactions” could lead to a swift correction of sentiment-driven gains. Notably, as the peak of policy disruptions passes, market volatility is expected to gradually retreat from current elevated levels.

The nickel market has transitioned from a “capacity-driven” era to a “policy-priced” era.

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