According to Futures Daily, the international nickel market underwent a structural repricing driven by supply-side policies during the first half of the year. Early in the year, policies tightening nickel ore quotas in Indonesia spurred a rebound in nickel prices from their lows. Following the outbreak of conflict in the Middle East in late February, concerns over sulfur supplies intensified; combined with the implementation of Indonesia's new benchmark price (HPM) policy, LME nickel prices surged, hitting a nearly two-year high of $20,000 per ton in early May. However, persistently high energy prices and renewed expectations of Federal Reserve interest rate hikes weighed on the non-ferrous metals sector; coupled with high global inventories of refined nickel, these factors caused nickel prices to pull back from their highs. In June, the Federal Reserve signaled a hawkish stance, reinforcing expectations for rate hikes later in the year. Simultaneously, Indonesia indicated it might loosen nickel ore mining quotas to meet smelting demand, raising expectations for increased RKAB (Work Plan and Budget) quota approvals, which put downward pressure on nickel prices.

Indonesian Policy Impacts Market Expectations

Indonesia has signaled an intention to relax nickel ore mining quotas to satisfy smelting demand; market attention is now focused on the approval process for the second batch of RKAB quotas for the second half of the year. Reports indicate that 260 million tons of nickel ore quotas for 2026 have already been approved, aligning with initial targets. The WBN nickel mine entered a maintenance-related shutdown in mid-May due to a quota shortfall. With Vale applying for increased quotas for its HPAL (High-Pressure Acid Leach) project, there is strong collective motivation among mining companies to secure additional quotas. In early June, Indonesia indicated it would relax quotas to align with the actual capacity requirements of domestic RKEF (Rotary Kiln-Electric Furnace) and HPAL plants. Although the Indonesian government has denied rumors that quotas would be drastically expanded to 360 million tons—stating instead that any new quotas must be tied to smelting capacity—uncertainty regarding the total volume of additional quotas remains. In the second half of the year, the focus will be on the approval status of Indonesian nickel ore quotas; if approvals exceed expectations, a subsequent drop in ore prices could lower the cost support for the nickel industry chain, with the volume of released quotas likely determining the depth of any nickel price correction. From a medium-to-long-term perspective, the trend of tightening Indonesian nickel resources is likely to persist, and the possibility of a recurrence of the quota-tightening narrative in the fourth quarter warrants attention.

Indonesia has seen a continuous rise in nickel ore imports from the Philippines, while ore prices have recently retreated. Since last year, the Philippines has been the primary source for filling Indonesia's nickel ore supply gap (specifically for adjusting silicon-to-magnesium ratios); import volumes have risen significantly year-on-year—particularly following the rainy season—leading to a slight decline in Philippine ore prices. According to data f, Indonesia imported 4.1915 million tons of nickel ore from the Philippines between January and April 2024, a year-on-year increase of 70.5%, with total annual imports projected to exceed 25 million tons. Regarding domestic Indonesian ore, the premium for pyrometallurgical-grade nickel ore has narrowed to $1–$5 per ton; combined with a drop in benchmark prices, the price of this ore has fallen by approximately $7 per ton, and overall supply is ample. Conversely, hydrometallurgical-grade ore faces slight downward pressure, with spot prices ranging from $26 to $34 per ton, partly due to production cuts in mixed nickel-cobalt hydroxide (MHP).

Despite the resumption of shipping through the Strait of Hormuz, the short-term supply of sulfur remains tight. Indonesia has limited domestic capacity for acid production from oil and gas refining; it relies on imports for 70% of its sulfur, with approximately 75% of those imports originating in the Middle East. Escalating conflict in the Middle East in March caused a sulfur supply shortage, driving prices above $1,100 per ton and pushing sulfur's share of MHP production costs to over 40%. While tensions in the Middle East have generally eased and shipping through the Strait of Hormuz is gradually recovering, the time required for loading and maritime transport to Indonesia exceeds two months, resulting in a prolonged recovery period. Consequently, Indonesia's sulfur supply remains tight in the short term, and attention should be paid to how the time lag in supply recovery affects cost support. Furthermore, fluctuations in sulfur prices have a significant impact on MHP production costs. As of June 26, the price of sulfur stood at approximately $1,100 per ton, corresponding to an MHP smelting cost of about $15,000 per ton (on a cobalt-adjusted basis). If sulfur prices subsequently fall to around $900 per ton, the MHP smelting cost would drop to approximately $14,000 per ton (cobalt-adjusted), and the cost of processing into electrolytic nickel would be around $17,000 per ton (cobalt-adjusted), potentially shifting the cost support level downward.

High Global Nickel Inventories

Global nickel inventories continue to rise, exerting significant downward pressure on nickel prices. Internationally, demand was weak in the first quarter, leading to a slight increase in LME nickel stocks; since the second quarter, declining export margins have reduced the volume of Chinese refined nickel delivered to overseas warehouses, causing LME stocks to stabilize at high levels. As of June 26, LME nickel inventories stood at 274,800 tons—an increase of 19,500 tons (7.6%) since the beginning of the year and 70,500 tons (34.51%) year-on-year. Domestically, a pattern of "strong overseas/weak domestic" markets opened the import window starting in March; however, limited demand absorption led to a significant accumulation of domestic social inventories of pure nickel. As of June 26, domestic social inventories totaled 129,200 tons, up 68,200 tons (111.7%) from the start of the year and 91,400 tons (241.5%) year-on-year. With the recent closure of the refined nickel import window, the pace of domestic pure nickel inventory accumulation may slow down.

Overall, high global nickel inventories are suppressing prices, and nickel spot premiums/discounts remain under pressure. Traders are increasingly willing to offer price concessions to move stock, and combined with market expectations of future supply increases, a near-term reduction in inventory levels appears unlikely.

Downstream Demand in Off-Season

Stainless steel production has declined during the off-season, while the ternary battery supply chain is driven primarily by essential demand. Regarding stainless steel, factors such as the rainy season and summer heat have resulted in insufficient orders for end-use sectors—including residential renovation, hardware, and home appliances—leading steel mills to cut production schedules. Maybe June stainless steel production at 3.5332 million tons, a month-on-month decrease of 7.42%. While steel mill production schedules saw a slight rebound in July, output plans for 300-series stainless steel fell further to 1.8721 million tons, a month-on-month decline of 5.15%. In the new energy sector, production schedules for ternary precursors and cathode materials have slowed marginally, with companies limiting procurement to immediate needs; the growth in new energy demand is currently insufficient to offset the seasonal weakening of demand in traditional sectors. Additionally, demand for nickel in industrial applications—such as alloys and electroplating—remains low.

Looking ahead, the volume and release pace of approved RKAB nickel ore quotas in Indonesia remain key variables determining the trajectory of nickel prices. If quotas are significantly expanded, the narrative of tightening Indonesian ore supply would be invalidated; combined with the pressure of high global nickel inventories, prices could seek lower levels, though the potential for a return to the "tightening quota" narrative in the fourth quarter bears watching. If quotas increase moderately, maintaining a tight balance between supply and demand, nickel prices may fluctuate as market concerns ease, creating opportunities for "buy-on-dip" strategies. If quota releases fall short of expectations, the narrative of tightening ore supply will persist, providing momentum for a price rebound. Furthermore, while the premium associated with sulfur supply concerns has receded following the resumption of shipping through the Strait of Hormuz, actual short-term supply in Indonesia remains tight; high sulfur prices continue to support MHP costs, necessitating vigilance regarding the lagged effects of sulfur supply dynamics.

Overall, rising expectations of Federal Reserve rate hikes and a strong US dollar continue to weigh on non-ferrous metal prices, though the easing of tensions in the Middle East and a drop in energy prices may alleviate inflationary pressure. July marks the application window for Indonesian RKAB nickel ore quotas; while it will take time for approval results regarding increased volumes to materialize, pessimistic expectations have already taken hold, suggesting nickel prices may experience weak, fluctuating trends in the short term. Attention should be paid to cost support levels for integrated electrowon nickel, as well as the impact of fluctuating policy news from Indonesia on market movements. Key factors to monitor in the second half of the year include the volume of approved Indonesian nickel ore quotas and the pace of production release, the recovery of sulfur supplies, and changes in nickel inventory levels. A wait-and-see approach is recommended—short-term bearish but long-term bullish—with a focus on risk management.

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