Nickel prices exhibited significant fluctuations recently. After hitting a recent low on November 20, SHFE nickel prices continued to decline on December 16 and closed down 1.47%, setting a new low for this year. However, market sentiment received a significant boost from recent news regarding reduced nickel ore quotas in Indonesia, and nickel prices have rebounded rapidly. As of December 22, the most-traded SHFE nickel contract breached the Yuan 120,000/tonne threshold.
Source: Mysteel
The sharp decline in nickel prices in mid-to-late November was primarily attributed to round-tripping and ongoing inventory accumulation. However, the robust price of nickel sulfate at the time created a significant spread with nickel prices, triggering a swift response from producers. Some refined nickel producers began shifting production towards nickel sulfate. The decline in the supply side led to an improvement in the market's pessimistic expectations for nickel prices, and subsequently, nickel prices gradually rose to around Yuan 118,000/tonne.
However, the reduced supply failed to alter the broader oversupply situation in the nickel industry. As stockpiles continued to grow, the upside potential for nickel prices gradually diminished. On December 15, a single-day surge of 2,622 tonnes in nickel warrant inventories on the Shanghai Futures Exchange (SHFE) contributed to a further price decline during the night session, setting a new annual low for the year.
Notably, the persistent price weakness did not prompt smelters to cut production on a large scale. Instead, the projected production for December saw an increase. The main reason lies in the wide decline of nickel sulfate prices. With this decline, only a small portion of production using nickel matte remained marginally profitable. Furthermore, the inherent structure of the nickel sulfate sector limits substantial external feedstock procurement, so the possibility of smelters making large-scale switches to the production of nickel sulfate is relatively low. Meanwhile, nickel plate, as a futures deliverable product, offers strong liquidity. This incentivizes smelters to maintain production even at lower price levels rather than proactively reducing production.
However, market shifts are often unpredictable. On December 17, Indonesia's Nickel Miners Association (APNI) indicated that the nickel ore production target in the 2026 Work Plan and Budget (RKAB) was approximately 250 million wet metric tonnes (wmt), a significant decrease from the 379 million wmt target set for the RKAB in 2025. According to Mysteel, Indonesia's nickel ore consumption in 2026 is projected to reach about 310 million wmt. Although Indonesia had previously stated that remaining RKAB quotas from 2025 could be carried over into the first quarter of 2026, under an optimistic scenario (assuming all 250 million wmt is available for smelting), the total usable quota for 2026 would be around 290-300 million wmt.
If the 250 million wmt figure still includes quotas related to nickel ore exploration--assuming such exploration quotas account for roughly 20%--then the actual usable smelting quota would be only about 200 million wmt. Even with the remaining quota from 2025, the total usable amount would only be around 250 million wmt. Such a restriction on the ore supply would significantly limit the release of downstream products. And the nickel price rose sharply after the news.
Looking ahead, news on the supply side is expected to continue supporting nickel prices in the short term. However, the oversupply situation in the refined nickel market remains unchanged. Coupled with gradually slowing capacity expansion in China and planned commissioning of some new capacity in Indonesia, the overall nickel production is projected to keep growing. The pace of withdrawal of high-cost capacity overseas has slowed, intensifying competition in the refined nickel market. Persistently low prices are likely to continue dampening production incentives among enterprises. It is recommended that the market pay attention to actual operating rates and potential production cuts at nickel facilities.
Additionally, with ongoing releases of new capacity in Indonesia and sustained exports from China, overseas markets are still under pressure, which may significantly narrow the room for fluctuations in price spreads between the Chinese and international markets.
In terms of nickel pig iron (NPI), as the Indonesian government tightens control over pyrometallurgical capacity and profits contracts, new NPI capacity in Indonesia is expected to slow in 2026. Downstream stainless steel production in China and Indonesia still has some plans for capacity restarts and new launches. If Indonesian NPI flows back to China, the overall supply-demand balance may improve to some extent. Going forward, market players could notice nickel ore price trends, as well as whether some capacity will shift to NPI production amid unfavorable economics for nickel matte.
Written by Cora Ji, jiruyan@mysteel.com
