Nickel prices jumped sharply on Wednesday as Indonesia ordered a significant reduction in output at the world's largest nickel mine, further tightening supply from the nation that has rapidly emerged as the dominant producer of the metal.

The benchmark nickel price on the London Metal Exchange climbed 2% to nearly $18,000 per ton. Fueled by expectations of potential Indonesian production quotas, nickel prices have surged this year to their highest levels since 2024.

Indonesia plans to significantly reduce the overall production quota for its nickel industry by 2026. Indonesian authorities stated this week that the national nickel ore production quota for this year will be cut by over 100 million tons from 379 million tons in 2025, to a range of 260 million to 270 million tons.

Over the past decade, Indonesia has rapidly evolved from a minor player in the global nickel market to an absolute powerhouse in the nickel industry. It currently accounts for two-thirds of global nickel production, making it the world's largest nickel producer.

Nickel is a key raw material for producing stainless steel and electric vehicle batteries. However, persistent global nickel oversupply has kept prices depressed in recent years. To boost nickel prices and support domestic nickel companies facing shrinking profits and losses, Indonesian authorities have implemented multiple measures through licensing and production quota systems to restrict nickel ore output.

The benchmark nickel price briefly surpassed $100,000 per ton in 2022 but has remained depressed below $20,000 per ton over the past 18 months.

Paris-listed Eramet Group, currently embroiled in a governance crisis, has been severely impacted by the nickel price collapse. Its Western competitors in other regions also struggle to compete with Indonesia's low-cost nickel producers.

Amidst a nickel supply glut, several Western mining companies have shut down their nickel operations, including mining giant BHP, once one of the world's largest nickel producers.

Indonesia imposed a ban on raw nickel ore exports in 2020, mandating companies to establish refineries within the country.

Macquarie data indicates that Indonesia's refined nickel supply will account for approximately 65% of global output by 2025, up from just 6% in 2015. The nation's global market share is projected to continue rising throughout this decade.

Eramet Group stated it is “committed to maintaining constructive and ongoing communication with relevant Indonesian authorities” and plans to apply for “an increase in its nickel ore production quota for this period.”

In January this year, Brazilian mining company Vale announced it had been forced to suspend its nickel mining operations in Indonesia due to the lack of official approval documents and production quotas for 2026 issued by Indonesian authorities.

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