By Penny Langford
Nickel prices have recovered modestly in late September, with both LME and SHFE contracts rising by more than 1% in a recent session and spot nickel trading near $16,337 per tonne, according to market data reported by Trading Economics and Shanghai Metals Market.
The move is notable, but it does not yet amount to a fundamental breakout. Indonesia is restricting ore supply, while Indonesian nickel pig iron (NPI) and Chinese refined production continue to provide substantial material to stainless steel and battery supply chains. At the same time, large refined inventories and additional high-pressure acid leach (HPAL) capacity are limiting the market’s ability to sustain a rally.
The central question for the nickel market outlook 2026 is whether Indonesia’s supply discipline will eventually reduce exchange-visible refined inventories, or whether excess NPI, Class 1 production and new battery intermediates will keep prices range-bound through 2027.
The late-September bounce meets a well-supplied refined market
Nickel’s recent price action reflects tighter upstream conditions rather than a confirmed refined-metal shortage.
The LME cash market has been trading in the mid-$16,000s per tonne. Metal.com market data showed nickel futures moving around the $16,300–$16,600 range in recent sessions, while SHFE nickel also gained as much as 1% during the overnight market.
Yet warehouse stocks remain a significant constraint. Late-September market assessments cited by SMM and other metals data providers placed combined LME and SHFE refined nickel inventories near 478,000 tonnes, equivalent to roughly seven weeks of global consumption. That stock cushion helps explain why a stronger session has not yet developed into a sustained price squeeze.
The market is also divided by product class:
- NPI and ferronickel: primarily linked to stainless steel and exposed to Indonesian ore availability;
- Nickel matte and MHP: increasingly important to battery supply chains;
- Class 1 refined nickel: the product most directly represented in LME inventories;
- Nickel sulfate: dependent on battery demand, precursor production and chemistry choices.
Indonesia can tighten ore and raise smelter costs without immediately removing refined nickel from warehouses. That transmission mechanism takes time.
Indonesia is tightening supply, but not eliminating capacity
Indonesia’s 2026 nickel ore policy is restrictive by design. The government has indicated a national RKAB quota of roughly 260–270 million tonnes, compared with about 379 million tonnes under the previous framework, according to Indonesia’s Ministry of Energy and Mineral Resources and reporting summarized by S&P Global Commodity Insights.
The new system also restores annual approvals and links permitted mining volumes to domestic smelting capacity. In principle, that should prevent ore production from expanding independently of NPI, ferronickel, matte and HPAL requirements.
In practice, the policy creates a tighter operating environment rather than an immediate global shortage. Producers must compete for approved ore volumes, and some smelters may run below nameplate capacity if suitable feedstock is unavailable. But Indonesia still has a large installed processing base, and the government has signaled that supplementary quotas may be issued where shortages threaten smelter operations.
The distinction between quota and actual output is important. A quota is a ceiling, not a guarantee that miners will extract, transport and process the full volume. Weather, power availability, grade, logistics and smelter economics can all reduce realized production.
Indonesian NPI capacity remains large even as ore approvals become more restrictive.
Royalties raise costs while the new HPM formula supports HPAL
Indonesia’s royalty framework is adding another layer of complexity. Under Government Regulation No. 19/2025, nickel ore royalties are set on a progressive basis of approximately 14% to 19% of the government’s mineral benchmark price, while NPI and ferronickel face rates of about 5% to 7%. Nickel matte royalties are set at roughly 3.5% to 5.5%, according to Argus.
Higher royalties can support government revenue and raise marginal costs across the domestic value chain. However, Indonesia’s September revision to the HPM formula for low-grade limonite has had the opposite effect for HPAL operators.
According to reporting by Reuters and Indonesian officials, the benchmark for 1.2% nickel limonite was reduced to about $24.89 per wet metric tonne, from approximately $44.97 per wet metric tonne. The corrective factor for nickel was cut from 26% to 14%, while the cobalt factor declined from 30% to 17%.
The change lowers the benchmark price used to calculate ore costs, taxes and royalties for low-grade material mainly consumed by HPAL plants. That may improve the economics of Indonesian battery-material production and allow some facilities to operate more consistently.
For the global market, this creates an important offset to quota discipline: Indonesia is restricting the amount of ore that can be mined while also reducing the cost pressure on a processing route that can produce battery-grade intermediates.
Stainless steel remains the demand anchor
Stainless steel is still the largest source of primary nickel demand, accounting for more than 60% of consumption in most industry estimates. Its performance matters more to the overall nickel balance than the faster-growing battery segment.
Chinese crude stainless steel output reached 21.19 million tonnes in the first half of 2026, up 7.2% year over year, according to data cited by FT Mercati. The result indicates resilient mill activity, but it does not guarantee a strong second-half demand cycle. Stainless producers remain exposed to property-sector weakness, export conditions, scrap availability and margin pressure.
Stainless demand is also a major reason NPI remains central to the outlook. Indonesian NPI is not interchangeable with every form of refined nickel, but it supplies a large and cost-sensitive part of the stainless chain. If stainless production remains firm, NPI demand can absorb substantial Indonesian output even while Class 1 inventories remain high.
Stainless steel remains the largest demand segment for primary nickel.
Battery-grade nickel still faces a surplus risk
Battery demand is growing faster than stainless steel demand, but its influence on total nickel consumption remains limited by chemistry substitution and intermediate oversupply.
FT Mercati, citing SunSirs and Mysteel, reported that Indonesian MHP output fell 10.4% year over year to 200,100 nickel tonnes in the first half of 2026. Sulfur availability, ore constraints and weak HPAL economics contributed to production cuts at several plants.
At the same time, Chinese nickel sulfate output rose 36.6% to 208,000 nickel tonnes during the first half. Chinese refined nickel production reached 205,900 tonnes, down 2.1% year over year, while installed refined capacity stood at approximately 52,300 tonnes with operating capacity near 49,500 tonnes and utilization of 94.7%.
The figures show why the battery segment can remain oversupplied even when individual HPAL projects face cost pressure. China retains substantial conversion capacity, and Indonesia is still adding or ramping facilities that can feed the battery chain.
The risk becomes more pronounced in 2027. If new HPAL capacity ramps successfully, MHP supply could move the battery-grade market from a tight 2026 balance toward surplus. Sulfur, limestone, acid handling and tailings management may delay that outcome, but they are not necessarily permanent barriers.
New HPAL capacity could cap nickel rallies if battery intermediates expand faster than demand.
Nickel market outlook: base, bull and bear scenarios
The following ranges are a Skillings scenario framework rather than a direct price forecast. They are anchored to the current $16,000–$17,000 market, the forecast ranges published by ING, BMI, Goldman Sachs, CRU and Mysteel, and the supply assumptions outlined by Nornickel and SMM.
| Scenario | 2026 LME nickel range | 2027 LME nickel range | Main conditions |
|---|---|---|---|
| Bear case | $13,000–$15,500/t | $12,500–$15,000/t | Indonesian output recovers, HPAL ramps faster and LME stocks remain elevated |
| Base case | $15,500–$17,500/t | $15,800–$18,000/t | Quotas remain restrictive, but refined inventories and NPI capacity limit upside |
| Bull case | $18,000–$21,000/t | $19,000–$23,000/t | Actual Indonesian output falls below quota, stocks draw down and stainless or battery demand accelerates |
The base case is the most balanced interpretation of current evidence. Indonesia is tightening the upstream market, but Chinese refined capacity and existing inventories are preventing a rapid transition into deficit.
The bull case requires confirmation through falling LME and SHFE stocks, lower refined output and sustained feedstock shortages. A single strong price session is not enough.
The bear case would become more likely if Indonesia relaxes quota restrictions, if new HPAL operations lower battery-intermediate costs, or if stainless demand weakens materially. In that outcome, ore prices could remain volatile while the refined market continues to carry surplus metal.
What to monitor next
For operators, consumers and policymakers, the most important indicators are:
- Indonesian ore production versus the 260–270 million-tonne RKAB ceiling;
- NPI and ferronickel utilization rates;
- LME cancellations, warrants and regional warehouse stocks;
- Indonesian HPM revisions and royalty implementation;
- HPAL sulfur, limestone and tailings-management costs;
- Chinese stainless steel output and margins;
- Nickel sulfate and MHP inventories;
- Evidence that new Indonesian HPAL capacity is ramping commercially.
Nickel’s recent 1% bounce shows that the market remains sensitive to supply discipline and policy headlines. But the broader nickel market outlook 2026 is still defined by a tension between tighter ore and abundant processing capacity.
Unless Indonesian restrictions produce a sustained drawdown in refined inventories, prices are likely to remain range-bound. The most important shift would not be another short-term rally. It would be proof that upstream discipline is finally moving through NPI, matte, MHP and Class 1 supply chains into the visible refined market.
