Looking forward to the future, the amount and release rhythm of the Indonesian RKAB nickel mine quota are still key variables determining the trend of nickel prices. In addition, after the resumption of shipping in the Strait of Hormuz, the premium of sulfur supply concerns has declined, but the actual supply of sulfur in Indonesia is still tight in the short term, and the high sulfur price still provides support for MHP costs, and be careful of the lag effect of sulfur supply.

In the first half of the year, the international nickel market experienced a structural re-pricing dominated by supply-side policies. The tightening of Indonesia's nickel mine quota at the beginning of the year stimulated a rebound in nickel prices from the bottom. After the outbreak of the Middle East conflict at the end of February, concerns about sulfur supply increased, combined with the implementation of Indonesia's new base price for mineral resources (HPM), LME nickel prices surged, reaching 20,000 US dollars/ton in early May, hitting a two-year high. However, the continuous high energy prices, the recovery of the Fed's interest rate hike expectations, the suppression of the non-ferrous metal sector, and the high global pure nickel inventory also suppressed nickel prices, leading to a correction at high levels. In June, the Fed's interest rate meeting released a "hawkish" signal, further strengthening the expectation of interest rate hikes this year, combined with Indonesia's statement that it may increase nickel mine production quotas to meet smelting demand, the expectations of increased nickel mine work plans and budgets (RKAB) quotas strengthened, and nickel prices were under pressure and declined.

Indonesian policy affects market expectations

Indonesia has expressed a willingness to relax nickel ore export quotas to meet smelting demand, and market attention is focused on the second-round nickel ore quota approvals in Indonesia for the second half of the year. Market information shows that Indonesia’s 2026 RKAB nickel ore quota has been approved at 260 million tons, consistent with the initial target. WBN nickel ore operations have been under maintenance since mid-May amid quota shortages. Vale has applied for a quota increase for its high-pressure acid leaching (HPAL) wet-process metallurgy project, and mining companies are highly motivated to seek higher quotas. In early June, Indonesia stated it was open to easing nickel ore quotas to align with the actual production capacity demand of its domestic smelting facilities, including rotary kiln electric furnace (RKEF) and HPAL plants. Recent market rumors claim Indonesia will substantially raise its nickel ore quota to 360 million tons. While the Indonesian government has refuted this rumor and clarified that any additional quotas must be linked to domestic smelting capacity, the total volume of new quotas remains uncertain. The key market focus for the second half of the year will be Indonesia’s nickel ore quota approval results. If the approved nickel ore quota exceeds market expectations, falling ore prices could push down the cost support level across the nickel industrial chain, with the volume of newly released quotas set to determine how far nickel prices may correct. Over the medium to long term, the trend of tightening nickel resource supplies in Indonesia is likely to persist, and investors should watch for the risk of renewed quota tightening rhetoric emerging in the fourth quarter.

Indonesia's imports of nickel ore from the Philippines have continued to increase, and recently, the price of nickel ore has declined. Since last year, Indonesia's nickel ore gap has been mostly filled by nickel ore from the Philippines (used to adjust the silicon-magnesium ratio). The number of nickel ore imports from the Philippines by Indonesia has increased significantly year-on-year, especially after the rainy season, and the price of nickel ore in the Philippines has been adjusted downward. According to Steel Union data, from January to April 2026, Indonesia imported 4.1915 million tons of nickel ore from the Philippines, an increase of 70.5% year-on-year, and the import volume for the whole year is expected to exceed 25 million tons. On the Indonesian side, currently, the premium of Indonesian thermal nickel ore price is narrowed to 1~5 USD／ton, combined with the decline of the benchmark price, the price of Indonesian thermal mine has dropped by about 7 USD／ton, and the supply is generally sufficient; the wet method mine is affected by the reduction of MHP production, and the spot price is 26~34 USD／ton, slightly under pressure.

After the opening of the Strait of Hormuz, the short-term supply of sulfur is still tight. The acid-making capacity of Indonesia's domestic oil and gas is weak, and 70% of the sulfur comes from imports, with about 75% of the imported sulfur relying on the Middle East. In March, the escalation of conflicts in the Middle East led to a shortage of sulfur supply, and the price of sulfur once rose above $1100/ton, with the proportion of sulfur in the MHP smelting cost rising to more than 40%. Currently, the overall situation in the Middle East has cooled down, and the Strait of Hormuz is gradually restoring navigation, but it takes more than 2 months to load sulfur and transport it by sea to Indonesia, and the recovery cycle is long, so the short-term supply of sulfur in Indonesia is still tight. Subsequently, we will focus on the support of the lag effect of the recovery of sulfur supply on the cost side. In addition, the fluctuation of sulfur price has a great impact on the MHP smelting cost. As of June 26, the price of sulfur is about $1100/ton, corresponding to the MHP smelting cost of about $15,000/ton (after cobalt conversion). If the sulfur price subsequently falls back to around $900/ton, the MHP smelting cost is about $14,000/ton (after cobalt conversion), and the cost of processing it into electroplated nickel is about $17,000/ton (after cobalt conversion), and the cost support may be slightly lower.

Global nickel inventories remain high

Global nickel inventories continue to rise, exerting strong downward pressure on nickel prices. Overseas, in the first quarter, overseas demand for nickel was weak, and LME nickel inventories increased slightly. Since the second quarter, due to the decline in export profits, the number of Chinese refined nickel enterprises delivering to overseas exchanges has decreased, and LME nickel inventories have remained stable at a high level. As of June 26, LME nickel inventories were 274,800 tons, an increase of 19,500 tons from the beginning of the year, a rise of 7.6%; an increase of 70,500 tons from the same period last year, a rise of 34.51%. Domestically, the pattern of strong external and weak internal demand has led to the opening of the import window since March, but the demand side has limited capacity to absorb, and domestic pure nickel social inventories have increased significantly. As of June 26, domestic social inventories were 129,200 tons, an increase of 68,200 tons from the beginning of the year, a rise of 111.7%; an increase of 91,400 tons from the same period last year, a rise of 241.5%. The recent closure of the refined nickel import window may slow down the pace of domestic pure nickel accumulation.

Overall, the high global nickel inventory is suppressing nickel prices, the premium of nickel spot continues to be under pressure, the willingness of traders to offer goods at a discount is increasing, and the expectation of subsequent supply increases is superimposed on the market, which makes it difficult for inventory to be reduced in the short term.

Downstream demand is in the off-season.

Off-season stainless steel production decline, with the three-element chain mainly driven by essential demand. In terms of stainless steel, affected by the plum rain season, high summer temperatures and other factors, there is insufficient demand for stainless steel civil engineering and hardware household appliances, and steel mills have reduced production scheduling. Steel Union predicts that the stainless steel production in June will be 3.5332 million tons, a decrease of 7.42% compared to the previous month. In July, steel mills' production scheduling slightly increased, but the production scheduling of 300 stainless steel further decreased to 1.8721 million tons, a decrease of 5.15% compared to the previous month. In terms of new energy, the production scheduling of lithium iron phosphate and cathode enterprises has slowed down marginally, maintaining essential demand purchasing, and the incremental demand for new energy is not enough to offset the seasonal weakness in traditional field demand. In addition, industrial demand for nickel, such as alloys and electroplating, is still at a low level.

Looking forward to the future, the magnitude and release rhythm of Indonesia's RKAB nickel mine quota are still key variables determining the trend of nickel prices. If the quota is significantly relaxed, the narrative of tightening supplies in Indonesia will be falsified, combined with the suppression of high global nickel inventories, nickel prices may further search for a bottom. In the fourth quarter, attention can be paid to whether the narrative of quota tightening can be replayed. If the quota is moderately increased, the nickel mine maintains a tight balance between supply and demand, and the market's concerns are alleviated, nickel prices may fluctuate, waiting for a low buying opportunity. If the quota release is lower than expected, the narrative of tightening nickel mine supply will continue, and nickel prices have the potential to recover upward. In addition, after the resumption of shipping in the Strait of Hormuz, the premium of sulfur supply concerns declined, but in the short term, the actual supply of sulfur in Indonesia is still tight, and the high sulfur price still supports the cost of MHP, and be careful of the lag effect of sulfur supply.

Overall, the expectation of interest rate hikes by the Fed is rising, and the strong US dollar still suppresses the prices of non-ferrous metals. However, with the easing of the situation in the Middle East and the decline in energy prices, inflationary pressures are expected to be alleviated. July is the window period for Indonesia's RKAB nickel mine quota declaration, and the results of the incremental approval of mining companies will take some time to land, but the pessimistic expectations have formed, and nickel prices may be weak and fluctuating in the short term. We should pay attention to the cost support of integrated electro-deposited nickel below, and we need to be wary of the impact of repeated Indonesia policy messages on the market. In the second half of the year, we should focus on the approval volume and production release rhythm of Indonesia's nickel mine quota, the recovery of sulfur supply, and the change of nickel inventory. Operationally, it is recommended to be cautious, short-term bearish and long-term bull, and pay attention to risk control.

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