By Penny Langford
Indonesia’s nickel industry is entering 2026 with tighter mining controls but enough installed processing capacity to keep the global market supplied. That tension defines the nickel market outlook 2026: Indonesian ore quotas are being reduced, yet NPI, ferronickel and battery intermediates continue to flow from a large downstream base built during the country’s rapid expansion.
The result is a market that is less oversupplied than it was at its weakest point, but not yet structurally tight. Our central price scenario is an LME nickel average of $17,800–$18,000 per tonne, although that range sits toward the firmer end of published forecasts. Persistent Indonesian production, elevated inventories and subdued stainless-steel growth remain the main reasons prices are likely to stay capped.
2026 nickel market snapshot
| Metric | 2026 outlook | Why it matters |
|---|---|---|
| Indonesian nickel ore quota | About 250–260 million wet tonnes in the initial reported band | Materially below the 379 Mt approved for 2025 |
| Global market balance | Surplus in the main institutional base case | Supply remains sufficient to limit sustained price rallies |
| Alternative balance case | Near balance to a small deficit | Depends on strict quota enforcement and stronger demand |
| LME nickel price scenario | $17,800–$18,000/t average | Requires tighter Indonesian supply and inventory drawdown |
| Stainless-steel share of demand | More than 60% | Keeps class 2 nickel central to the market |
| Battery demand | Approximately 0.52–0.56 Mt of nickel | Fastest-growing segment, but smaller than stainless |
Forecasts vary significantly because analysts use different assumptions about Indonesian mine utilization, the treatment of MHP and matte, and the pace at which new HPAL capacity reaches commercial production.
ING Research expects another global surplus of approximately 261,000 tonnes in 2026, while Sumitomo Metal Mining has projected a surplus near 256,000 tonnes. Other estimates are tighter, with S&P-linked analysis placing the surplus closer to 120,000–156,000 tonnes. An alternative International Nickel Study Group scenario implies a small deficit.
That range matters. A market surplus of 250,000 tonnes would keep prices under pressure even if Indonesia cuts ore supply. A balance close to zero, by contrast, would make nickel much more sensitive to disruptions, permitting delays and changes in battery demand.
Indonesia can tighten ore without removing the surplus
Indonesia accounts for roughly 60% of global nickel output and is the dominant source of incremental supply. Its laterite deposits feed two major industrial chains:
- NPI and ferronickel for stainless steel
- MHP and nickel matte for battery-related processing
The country’s 2026 ore quota has been widely reported at approximately 250–260 million wet tonnes, down from 379 million tonnes in 2025. The reduction reflects Jakarta’s effort to control resource depletion, improve environmental oversight and prevent domestic smelter capacity from driving uncontrolled mine expansion.
The quota is significant, but it does not automatically translate into an equivalent reduction in refined nickel supply. Indonesia has already built substantial NPI, matte and HPAL capacity. Operators can draw on stockpiles, adjust ore grades, improve recoveries or seek supplementary approvals if smelters face shortages.
This is why the market has treated the quota cuts as a price-supporting measure rather than proof of an immediate deficit. The previous Skillings analysis of Indonesia’s quota changes estimated that the initial quota band could reduce available mine supply by roughly one-third from the 2025 authorization, while also noting that Jakarta retains administrative flexibility.
The key variable for prices is therefore not only the announced quota. It is the relationship between:
- Approved ore supply
- Actual mine utilization
- Smelter feed requirements
- Supplementary quota approvals
- Finished nickel output
If Indonesian mines operate well below quota, the global balance could tighten rapidly. If approvals are expanded later in the year, the market could return to a more visible surplus.
Class 2 remains the main source of oversupply
The distinction between class 1 and class 2 nickel is essential to understanding why a reported global surplus does not affect every product in the same way.
Class 1 nickel generally refers to refined material with at least 99.8% nickel content, including cathodes, briquettes and powders. Certain forms can be delivered to the London Metal Exchange and can be used directly in specialty alloys or converted into nickel sulfate.
Class 2 nickel commonly includes NPI and ferronickel, which are primarily used in stainless-steel production. Nickel matte and MHP are better described as intermediates because their role depends on their chemistry and processing route. They can support either stainless or battery supply chains.
The largest surplus is concentrated in the class 2 and intermediate markets. Indonesia’s low-cost NPI production has expanded rapidly, while new HPAL projects have added MHP capacity. That material has entered a market where stainless demand is growing only modestly and battery demand has not expanded quickly enough to absorb all new units.
The class 1 market is relatively tighter in structural terms, but it is not insulated from the broader surplus. Excess feedstock can be refined into class 1 nickel, and additional material can enter exchange warehouses. ING reported that LME nickel stocks had reached their highest level in more than four years, with rising exports from China and Indonesia adding to available refined supply.
That conversion route weakens the traditional assumption that class 1 will automatically command a large premium whenever class 2 is oversupplied. In 2026, the market will need to watch not just mine production but also the volume of class 2 material being upgraded into battery intermediates or refined metal.
Stainless steel remains the demand anchor
Stainless steel accounts for more than 60% of global nickel consumption and remains the principal outlet for NPI and ferronickel. This makes stainless production the most important demand variable for the bulk nickel market.
Consumption is expected to grow in 2026, but the outlook is not strong enough to absorb Indonesian supply growth without difficulty. Manufacturing activity in China and other major economies remains a concern, while higher stainless scrap use can reduce primary nickel intensity.
Indonesia itself is also expanding its stainless-steel industry, creating a captive outlet for domestic NPI. That integration protects some Indonesian producers from weak international demand, but it does not remove the broader market surplus. It can instead shift the pressure from ore markets to finished stainless and intermediate nickel markets.
For nickel producers outside Indonesia, this distinction is important. High-cost operations may remain vulnerable even if LME prices recover toward $18,000/t. Integrated Indonesian producers can often operate at lower costs and retain margins at prices that would challenge mines in Australia, New Caledonia or other higher-cost regions.
Battery demand is growing, but chemistry is limiting its impact
Battery demand is the fastest-growing source of nickel consumption, but it remains smaller than stainless steel in absolute terms. Forecasts place 2026 battery-related nickel use at approximately 520,000–560,000 tonnes, depending on the assumed EV and cathode mix.
High-nickel NMC chemistries continue to serve longer-range and higher-performance vehicles. However, LFP batteries have taken market share because they are generally cheaper, have strong cycle life and avoid nickel and cobalt. The growth of plug-in hybrids and slower EV adoption in some markets also affects the amount of nickel used per vehicle.
This means battery demand can tighten class 1 nickel and sulfate-linked intermediates without eliminating the class 2 surplus. Indonesian HPAL projects are increasingly designed to produce MHP for the battery chain, but their effective output depends on ore quality, acid availability, operating reliability and environmental approvals.
The market is therefore developing a two-speed structure:
- Bulk class 2 material: abundant and linked to stainless steel
- Battery-grade material: growing faster, but exposed to chemistry shifts and HPAL execution risks
Why $17,800–$18,000 is a firm but defensible scenario
The $17,800–$18,000/t average scenario is above the more conservative surplus forecasts. ING, for example, has placed its 2026 average near $15,250/t, while other analysts have published forecasts in the $17,000–$18,500/t range.
For prices to average near $17,800–$18,000/t, several conditions would likely need to hold:
- Indonesia enforces the lower ore quota through the year.
- Supplementary approvals remain limited.
- HPAL projects experience delays, lower recoveries or feedstock constraints.
- LME and other visible inventories begin a sustained drawdown.
- Stainless demand remains stable rather than weakening sharply.
- Battery demand grows toward the upper end of current forecasts.
- High-nickel cathodes retain market share in premium EV segments.
The main downside risk is a policy reversal. If Jakarta raises quotas to protect smelter utilization, additional ore could quickly reach NPI and intermediate plants. A faster-than-expected shift toward LFP batteries would create another headwind by reducing nickel intensity in the EV market.
The upside risk is a supply shock. Strict enforcement, environmental suspensions, HPAL outages or sulfur shortages could push the market toward balance and make prices more responsive to even modest demand improvements.
What operators and investors should monitor
The nickel market outlook 2026 is less about a simple surplus-or-deficit label than about product quality and supply-chain location. The headline market may remain oversupplied while battery-grade material becomes more expensive to secure.
Decision-makers should track five indicators:
- Indonesian RKAB revisions and actual mine output
- NPI and MHP production growth
- LME warehouse stocks and country-of-origin data
- China’s stainless output and scrap usage
- NMC versus LFP battery-market share
The Skillings analysis of critical-mineral supply chains provides broader context for how concentration and processing bottlenecks are reshaping procurement decisions.
Indonesia’s production growth will continue to cap nickel prices in 2026, but policy tightening has raised the market’s cost floor and narrowed the room for further supply expansion. An average of $17,800–$18,000/t is therefore best viewed as a firm scenario that depends on disciplined Indonesian output, rather than as a consensus outcome.
For the industry, the central question is no longer whether Indonesia dominates nickel supply. It is whether Jakarta can restrict ore production quickly enough to offset the processing capacity already built across the country.