Could Indonesia's 40% nickel production cut be a game-changer for global supply?

• Global nickel demand set to rise 10%-15% in 2025
  
  
• Nickel tags fall y-o-y for 2nd straight year in 2024
  
  

Nickel producers are bracing for a challenging 2025, as Indonesia's rapid production expansion keeps the market oversupplied, exerting pressure on prices. However, the Indonesian government plans a potential 40% cut to nickel mine quotas, which could have a substantial impact on global supply.

The government's cuts could reduce Indonesia's nickel production from 272 million tonnes (mnt) in 2024 to as low as 150 mnt in 2025.

Why is Indonesia reducing nickel production?

Indonesia, the world's largest nickel producer, is reducing output quotas to balance global demand with resource sustainability. Nickel, essential for electric vehicle (EV) batteries and renewable energy systems, faces overexploitation risks, raising concerns about reserve depletion and environmental harm.

Notably, previously, in 2020, the Indonesian government had banned the export of nickel ore, in an effort to preserve resources while boosting economic value. By transitioning from raw ore exports to high-value processed products such as nickel matte and mixed hydroxide precipitate (MHP), Indonesia aimed to protect reserves and enhance economic returns through downstream industries.

What will be impact on global nickel market?

Indonesia has cemented its status as the world's leading nickel producer, supplying over 56% of global mined nickel in 2024. This dominance is expected to strengthen, with the country's output projected to rise by 7.7% in 2025 to 2.4 mnt. However, with the proposed mining quota cut, segments such as the EV industry, which is already facing raw material shortages, could be adversely affected.

Indonesia's restrictions on nickel ore exports have already strained supply, resulting in record outflows of the same from the Philippines, the second-largest producer, in 2024. Despite these challenges, the market remained oversupplied, as weakening demand from the stainless steel and battery sectors contributed to a second consecutive y-o-y decline in average nickel prices in CY'24.

China, the largest buyer of Indonesian nickel, may struggle the most, as it imported over 60% of its nickel ore from Indonesia as of 2024. Manufacturers may turn to alternative sources like the Philippines or New Caledonia, though these cannot match Indonesia's scale.

Supply glut to weigh on nickel tags

As of 10 January 2025, the LME reported a three-month nickel price of $15,500/t, reflecting a slight increase in prices post the mining quota cut proposal. However, it shows a 29% decline from its intra-year peak of $21,615/t in May 2024.

According to a secondary source, "The global nickel surplus is expected to decrease slightly, from 103,000 t in 2024 to 87,000 t in 2025. However, this surplus remains large enough to suppress prices, raising the likelihood of further mine closures."

Producers have been trying to address the excess supply in the market. Indonesia aims to regulate supply and support prices, while companies such as BHP Group and Anglo American are halting operations and divesting assets. BHP has suspended its Nickel West operations, and Anglo American has sold two Brazilian mines. Additional temporary mine closures may occur if prices fall below production costs.

Strategic opportunities for Indonesia

The quota reduction presents opportunities for Indonesia to strengthen its position in the global supply chain by focusing on downstream industries. By increasing exports of high-value products such as nickel sulphate and precursor cathode active materials (pCAM), Indonesia can attract foreign investment in nickel processing and battery manufacturing. With global EV manufacturers seeking stable, sustainable nickel supplies, Indonesia's strategy could make it a preferred investment hub.

Outlook

A 10%-15% increase in global primary nickel demand is expected in 2025, nearly double the expected production growth rate. As a result, nickel prices are projected to rise significantly. However, this price increase may be short-lived, depending on the demand from end-user sectors.