By Sonny Jimerson
For the better part of two years, the global nickel market has operated under a single, suffocating narrative: Indonesia has too much of it, it’s too cheap to produce, and Western miners are essentially toast. We’ve watched as BHP mothballed its Nickel West operations and French miners fled New Caledonia, all while Jakarta’s low-cost floodgates remained wide open.
But here’s the thing nobody wants to admit: the “infinite supply” era just hit a wall.
In a massive reversal that has sent ripples through commodity desks from Singapore to London, Macquarie Group has officially flipped its forecast. They aren’t just tweaking the numbers; they are tearing up the old playbook. Macquarie has moved the goalposts from a projected 90,000-tonne global surplus to a potential supply deficit.
That isn’t a rounding error. That is a fundamental shift in the strategic calculus of the most important metal in the EV battery supply chain.
The Death of the Surplus Narrative
Macquarie’s pivot is a “chickens-coming-home-to-roost” moment for the industry. For months, the consensus was that Indonesian supply was an unstoppable juggernaut. However, the Indonesian government has begun to tighten the screws on its domestic miners through a bureaucratic mechanism known as the RKAB (Work Plan and Budget) approvals.
By limiting production quotas, Jakarta is effectively moving from a volume-at-all-costs strategy to a price-stabilization strategy. The numbers are brutal for those expecting continued cheap ore. Indonesia has reportedly reduced its 2026 nickel ore production quota to approximately 260–270 million tonnes. To put that in perspective, the quota for 2025 stood at 379 million tonnes.
A 100-million-tonne haircut in one of the world’s most critical mining jurisdictions. Per year. That is not a typo.
Because Indonesia accounts for roughly 60% of global nickel production, a domestic quota squeeze is a global supply shock. We are looking at a potential 15% year-on-year decline in global mine supply: the first annual decline since the world ground to a halt in 2020.
Why the Floor Just Moved to $17,000
The immediate result of this supply throttle has been a sharp spike in domestic premiums within Indonesia. These premiums have already driven a near $3,000 per tonne increase in the price of Nickel Pig Iron (NPI).
For the LME (London Metal Exchange) benchmark, the floor has fundamentally shifted. We are no longer looking at a race to the bottom toward $15,000. Macquarie’s analysis suggests a new price floor is forming between $17,000 and $18,000 per tonne.
This price support isn’t coming from a surge in demand: though lithium-AI demand and data center infrastructure are providing a background hum of growth: it is coming from the supply side being intentionally choked.
When the world’s lowest-cost producer decides it no longer wants to sell its resources for pennies on the dollar, the entire cost curve shifts upward. For Western operators who have been struggling to stay afloat, this might look like a lifeline. But for battery manufacturers, it’s a warning shot that the era of “cheap” transition metals is concluding.
The “Nasty” Complications: Sulfur and Safety
If the quota restrictions were the only headwind, the market might be able to adjust. But there are two “nasty” complications that are compounding the crunch: the Middle East and Morowali.
First, let’s talk about sulfur. To process nickel laterite into the battery-grade chemicals needed for EVs, you need massive quantities of sulfur. A significant portion of this sulfur is sourced as a byproduct of oil and gas refining in the Middle East. With regional conflicts threatening supply chains and logistics, the cost of getting sulfur to Indonesian high-pressure acid leach (HPAL) plants is skyrocketing.
You can have all the nickel ore in the world, but without the chemical reagents to process it, it stays in the ground.
Second, the human and operational cost of Indonesia’s rapid expansion is finally being reckoned with. A series of high-profile accidents at tailing dams and smelting complexes, particularly in the Morowali Industrial Park, has forced the government to slow down. Safety audits are no longer just “suggestions”; they are becoming mandatory pauses in production.
The strategic calculus here isn’t subtle: Indonesia realized they were burning through their high-grade reserves too fast, underpricing their assets, and ignoring safety risks. They are now choosing to trade volume for longevity and margin.
The Domino Effect on the Global Supply Chain
What happens next? The industry is already scrambling to find workarounds.
Indonesia is expected to surge its nickel ore imports to 50 million tonnes in 2026: up from just 15 million tonnes in 2025. Ironically, the world’s largest producer is now forced to import ore from the Philippines to keep its own massive smelting capacity running at even 70% utilization.
This creates a vacuum in the regional market. As Indonesia sucks up Philippine ore to feed its domestic mills, other buyers: primarily in China: will be forced to look elsewhere. This is where the 2026 Critical Minerals Scoreboard starts to get very interesting.
The US is trying to counter this through legislative means. The US Senate recently passed a new critical minerals law designed to fast-track domestic mining and battery metal processing. But you can’t disrupt geology. The US and its allies can pass all the laws they want, but they are still years away from replacing the sheer scale of Indonesian output.
A Stark Assessment for Investors
We are entering a period of forced volatility. For the last two years, the nickel market was predictable: it was a boring, downward slide. That predictability is gone.
If Macquarie is right: and the data on RKAB quotas suggests they are: the market is vastly underestimating the speed at which this surplus will evaporate. We are moving from a world of “nickel everywhere” to a world of “nickel, if you can get it.”
For investors and operators, the takeaways are clear:
- The Price Floor is Real: Forget sub-$16,000 nickel. The cost of production in Indonesia has risen, and the government is actively defending higher prices.
- Geopolitics is the New Geology: The conflict in the Middle East is now a direct input for the price of nickel due to the sulfur supply chain.
- Resource Nationalism is Winning: Jakarta has realized its power. By throttling supply, they are forcing the world to pay a premium for Indonesian industrialization. This is a trend we are seeing globally, as detailed in our report on resource nationalism in 2026.
The nickel shock isn’t coming; it’s already here. The only question is how long it takes for the rest of the market to catch up to the reality that Macquarie has just laid out. Those waiting for another year of cheap, easy supply are going to be left holding an empty bag.
In the mining industry, there is an old saying: “The best cure for low prices is low prices.” Indonesia’s low prices drove everyone else out of the market. Now, the low prices have finally claimed their last victim: Indonesian production itself.
The cycle has turned. Welcome to the deficit.
