Indonesian President Prabowo Subianto announced on May 20 that the government had issued a government regulation formally establishing the Natural Resources Export Agency (SDA), under which designated state-owned enterprises would act as the sole exporters of certain resources. The policy would be implemented in phases, with the first phase covering palm oil, coal, and non-ferrous ferroalloys.
Although the regulation does not explicitly mention nickel pig iron (NPI) and ferronickel (FeNi), which are among the most heavily invested areas by Chinese companies, both NPI and FeNi are major nickel resource exports from Indonesia and fall under the category of "non-ferrous ferroalloys." Therefore, upon the release of the news, market concerns emerged over future nickel raw material supply for stainless steel. On May 20, the closing prices of the most-traded SHFE nickel and stainless steel futures contracts were Yuan 145,390/mtu and Yuan 14,840/tonne, respectively, up 1.88% and 2.04%.
I. How would the plan to centralize export rights under state-owned enterprises be implemented?
The Indonesian government stated that the core objectives of the policy were to increase state revenues from taxes and resource income, as well as to prevent underreporting of export prices and better manage export foreign exchange. The policy will be implemented in two phases.
Phase 1: June 1, 2026 - August 31, 2026. A transition period during which export transactions will gradually be transferred from private companies to state-owned enterprises.
Phase 2: Starting September 1, 2026. All import-export transactions between foreign buyers and Indonesian sellers will be conducted through state-owned enterprises.
However, as of May 20, 2026, the Indonesian authorities had not released any formal policy documents, nor had they clarified under which cabinet agency the newly established Natural Resources Export Agency (SDA) would fall. On May 20, 2026, Indonesia's Minister of Energy and Mineral Resources stated that he was unaware of the President's announcement regarding the establishment of the SDA. How the policy will be implemented remains to be seen, and further follow-up is needed.
II. How did the market react to Indonesia's policy requiring natural resource trade flows to pass through state-owned enterprises?
Market feedback indicated that although the Indonesian government had not explicitly named nickel-related products in this announcement, the category of "non-ferrous ferroalloys" would most likely include nickel pig iron (NPI) and ferronickel (FeNi), both of which are primary nickel raw materials for stainless steel. Since Indonesia banned nickel ore exports in 2020, over half of global stainless steel production capacity is located in China by 2026, while more than 70% of NPI and FeNi resources are in Indonesia, and over 90% of Indonesia's NPI and FeNi production capacity had been built with Chinese investment.
In recent years, the Indonesian government has made significant efforts to increase state revenues from resource royalties, aiming to levy royalties on all of the country's natural resources. This has led to the introduction of royalty rates and the HPM (Harga Patokan Mineral) benchmark price for calculating royalties. Nickel-related products covered by this mechanism include nickel ore, ferronickel, nickel matte, MHP, nickel sulfate, and refined nickel. Among these, the HPM for ferronickel diverges significantly from actual transaction prices in both the Chinese and Indonesian NPI markets. Similar pricing issues are likely to emerge in the natural resource export trade flows under this new policy.
Beyond pricing issues, the allocation of responsibilities and rights in trade processes such as transportation, funding, and quality inspection is also a source of market concern. Currently, Chinese participation is significant in areas including pier construction, vessel shipping and warehousing, and financial support for Indonesian ferronickel smelters. If Indonesia's natural resource export rights were centralized under state-owned enterprises, how would pricing be determined among local Indonesian companies, the designated state-owned export enterprises, and downstream overseas buyers? How would cooperation function across funding, transportation, quality inspection, and other aspects of the trade flow? These remain unresolved challenges. Furthermore, the market is concerned that any additional costs arising from resolving these challenges would likely be borne by downstream stainless steel mills.
III. What is the current situation in the nickel pig iron market?
In late December 2025, the Indonesian government indicated that it would strictly control the supply of nickel ore in 2026. NPI prices rose from Yuan 890-895/mtu (ex-factory, including tax) on December 22, 2025, to Yuan 1,145-1,160 /mtu (ex-factory, including tax) by May 20, 2026. Since the beginning of 2026, supply and demand in the Chinese and Indonesian NPI markets have remained tight.
One direct consequence of the Indonesian government's strict control over nickel ore supply in 2026 was a sharp rise in domestic nickel ore prices in Indonesia. Taking the domestic trade settlement price of Ni:1.5% nickel ore, the mainstream raw material for Indonesian NPI, as an example, between December 22, 2025 and May 20, 2026, prices for this grade of nickel ore rose from US $47-49/wmt to US $70-74/wmt. By comparison, over the same period, Philippine nickel ore of the same specification rose from US $54-56/wmt to US $66-69/wmt. This marked the first time in five years that Indonesian nickel ore prices had exceeded Philippine nickel ore prices in the Chinese market.
Source: Mysteel
Currently, Chinese NPI smelters, which rely heavily on imported Philippine nickel ore, have a cost advantage over Indonesian NPI smelters. In May, the cost curve for NPI production in China and Indonesia underwent a notable shift, with Chinese NPI smelters moving to the left side of the cost curve for the first time in five years.
To fill the supply gap in nickel pig iron in China and Indonesia, Chinese NPI smelters plan to increase production in May. However, constrained by capacity limits, the month-on-month increase is only around 2,000 nickel tonnes, far from sufficient to cover the supply shortfall. Recently, Indonesia's demand for Philippine nickel ore and stainless steel mills' demand for overseas ferronickel (FeNi) have both increased. The price of FeNi in the Chinese market has risen from Yuan 1,030/mtu on December 22, 2025 to Yuan 1,330/mtu on May 20, 2026, an increase greater than that for NPI.
At the same time, the demand for stainless steel in China remained highly fragmented. Whether such demand would continue to support sustained output growth at Chinese stainless steel mills remained uncertain. As of May 20, social inventories of China's 300-series stainless steel, the product with the highest NPI consumption, were at relatively low levels compared with the previous two years. Profit margins for stainless steel were limited, and stainless steel prices showed strong resistance to downward pressure.
However, the peak demand seasons for China's stainless steel market were generally in the March-May and September-October periods. Against the backdrop of rising stainless steel production capacity, the off-season would likely affect stainless steel production scheduling to some extent. With the issue of tight sulfur supply not yet fully resolved, and without considering the switching of production between Indonesian nickel matte and NPI projects, it would be difficult to change the overall tight supply situation for NPI in China and Indonesia this year under current circumstances.
Written by Cora Ji, jiruyan@mysteel.com
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