Henry Lazenby | January 12, 2026
Nickel surged early this month on fresh speculation that Indonesia may tighten ore-production quotas this year, but not everyone is convinced the rally has legs – or that it will be enough to kick-start a new wave of western sulphide projects.
With the London Metal Exchange (LME) three-month contract’s sharp run towards $19,000 per tonne on Jan. 7 – a 24% increase over the past month – veteran nickel analyst Andrew Mitchell cautioned that the market was reacting more to hope than hard policy.
“It’s all smoke and mirrors right now,” Mitchell, who recently retired from Wood Mackenzie, said in an interview. In his view, a price around $18,500 per tonne is still “not enough” to spur a rush of new western supply. Although nickel traded above $20,000 for long stretches through 2022 and into 2023, major project approvals in the West failed to materialize, he added.
Mitchell’s skepticism centres on the uncertainty and opacity inside Indonesia’s quota process. The country sets mining and shipment limits through the RKAB system – annual work plan and budget approvals that effectively determine each miner’s ore-production and shipment quotas.
While Jakarta in December flagged tighter controls, “we don’t really know what the quotas were in the first place,” Mitchell said. Other unknowns: how much approved quota was actually used, what grades were mined, and whether any headline “cuts” would translate into real reductions in contained nickel.
Familiar debate
The uncertainty hasn’t stopped the market from moving. It was enough to revive a familiar debate across Canada, the United States and Australia: will Indonesia’s latest policy signals finally deliver a durable price boost – and with it, a path to sanction new western sulphide mines?
That puts a short list of western sulphide candidates back on the radar – including Talon Metals’ (TSX: TLO) Tamarack project in Minnesota, Giga Metals’ (TSXV: GIGA) Turnagain deposit in British Columbia and Kinterra Capital’s Nion Nickel’s Dumont project in Quebec, along with targets such as BHP’s (ASX, LSE, NYSE: BHP) West Musgrave in Western Australia, despite talks of the company selling its nickel business.
Price spike
Nickel’s price jump accelerated on Jan. 6, when the LME three-month contract surged almost 9% to close at $18,524 per tonne. That was the metal’s highest level since mid-2024, BMO Capital Markets said in a note to investors. Analysts attributed the spike to heavy buying linked to Chinese customers reacting to reports of Indonesia cutting ore production quotas by about a third.
“Nickel prices continue to surge in response to news reports suggesting that Indonesia will significantly slash nickel ore production quotas in 2026,” BMO analysts said.
Recent commentary from the Indonesian Nickel Miners Association suggested a 2026 ore cap of about 250 million tonnes, down from about 379 million tonnes in 2025, BMO said. If implemented, a cut of that scale could remove as much as 700,000 tonnes of nickel supply – potentially flipping the global market from years-long surplus to deficit, according to the Canadian bank.
Reality check
Even as quota talk tightened sentiment, the physical market delivered a reminder that nickel is still wrestling with oversupply – at least in the near term.
A single-day warranting of 20,760 tonnes of nickel onto the LME on Jan. 7 – the largest inflow since December 2019 – helped knock the three-month price down from a 19-month high near $18,800 to about $17,895 by day’s end.
Exchange visibility matters because today’s glut is increasingly concentrated in deliverable, Class 1 nickel on the LME – “the dumping ground for Class 1 that nobody needs and wants,” as Mitchell puts it. At the same time, the broader nickel complex remains shaped by Indonesia’s flood of lower-purity and high-carbon Class 2 units used in stainless steel.
The latest Indonesia-driven volatility is landing as governments and buyers sharpen their focus on securing North American critical-minerals supply, Power Metallic Mines’ (TSXV: PNPN) CEO Terry Lynch said on Jan. 8. The company, which is developing the polymetallic Nisk project in Quebec’s James Bay Lowlands, has spoken with US defence and policy circles that want “local supply” alongside global sourcing, he said.
Indonesia’s leverage, limits
Canada Nickel’s (TSXV: CNC) founder and CEO, Mark Selby, agrees that Indonesia holds the key levers – but he sees longer-term constraints that could force Jakarta to become a more disciplined supplier.
Selby told The Northern Miner, MINING.COM’s sister publication, that Indonesia is now behaving like an “OPEC of one” in nickel: the country’s nickel and stainless exports have become economically meaningful and he expects policymakers to increasingly manage output to maximize value rather than volume. From his point of view, Indonesia’s influence is only growing, and 2026 could mark a pivotal year.
Indonesia isn’t operating with limitless ore, Selby argued. Saprolite – the laterite layer used to make nickel pig iron and matte – represents roughly half of global nickel supply and is facing grade decline after years of “triple high-grading” to maximize nickel grade, nickel-to-iron ratios and smelter chemistry. Indeed, Indonesian operations have increasingly pulled in ore from the Philippines to keep plants fed, he said.
Mitchell doesn’t dispute Indonesia’s market power, but he questions whether the politics of quota cuts will be as simple as traders assume – and whether reductions would fall on major Chinese-linked industrial parks or smaller domestic miners. He also notes that cutting ore output could lower Indonesia’s royalty take, something policymakers will weigh carefully.
Western revival?
The central question for investors and miners is whether Indonesia-driven volatility can “re-rate” sulphide projects elsewhere – and whether the industry can actually build them.
Selby believes the strategic case for non-Chinese-controlled nickel supply exists even without Indonesian action, pointing to nickel’s longstanding role in high-performance alloys and defence applications. Prices in the $18,000–$20,000 per tonne range – particularly with a weak Canadian dollar – could support advancement of at least some Canadian projects, with momentum building further above $20,000, he said.
Mitchell is far less optimistic. Beyond price, he sees a practical bottleneck: processing capacity. After closures in Western Australia and a broader hollowing-out of western nickel processing over the past decade, a limited amount of spare sulphide smelting capacity now exists outside China. Even if new mines are approved, they can take years to permit, build and commission, Mitchell said – and the nickel price may not cooperate by the time first concentrate is ready.
On the much-discussed idea of a “green premium” for low-carbon Class 1 nickel, Selby and Mitchell were cautious. Selby said pricing differentials do exist between regions – with North American prices often carrying a premium to Europe and Asia – but he did not attribute that to a single, explicit low-carbon mechanism. Mitchell said any premium is more likely to show up in private offtake negotiations than on the LME.
Persisting surplus
Even with the recent price volatility, BMI/Fitch Solutions remains cautious on the near-term price outlook. In a Jan. 5 report, the firm forecast nickel to average about $15,500 per tonne this year, arguing the global market remains in surplus and could widen to about 250,000 tonnes in 2027 as Indonesian capacity continues to expand.
Although demand growth should rise modestly this year, battery-sector nickel demand has lagged earlier expectations as lithium-iron-phosphate chemistries gain market share and buyers lean toward plug-in hybrids, BMI says. At the same time, Indonesian policy shifts and tougher conditions for producers outside Indonesia could still help put a floor under prices, BMI added.
In the longer term, BMI expects tightening fundamentals to lift its modelled average nickel price toward about $26,000 per tonne by 2033–34. Global consumption is forecast to roughly double to about 7 million tonnes by 2034 from 2025 levels on clean-energy and stainless demand.
For now, Mitchell’s view is that the market is trading the possibility of Indonesian action – not the reality. “If Indonesia doesn’t do something, then the house of cards could all come crashing back down again,” he said.
Source: https://www.mining.com/indonesia-quota-talk-triggers-nickel-reality-check/
