Chinese-controlled nickel producers in Indonesia are reportedly considering coordinated output cuts as weak nickel prices and rising operating costs squeeze margins.
Companies including Tsingshan Holding Group, GEM, Lygend Resources & Technology (HKG:2245), and Zhejiang Huayou Cobalt (SHA:603799) have met over the past week to discuss lowering operating rates at their high-pressure acid leaching (HPAL) plants, according to Bloomberg.
Reducing production of mixed hydroxide precipitate (MHP), an intermediate nickel product produced through the HPAL process, is being considered as one response to increasingly challenging market conditions.
One proposal would see each producer cut output by about 30%, Bloomberg reported, citing people familiar with the discussions. However, no agreement has been reached, with some participants warning that coordinated reductions would be difficult to implement.
Any meaningful cuts could have implications for the global nickel market given Indonesia’s dominant position.
The Southeast Asian nation currently accounts for more than 60% of global nickel supply.
Much of that has been backed by Chinese capital and technical expertise, which helped Indonesia rapidly build its nickel processing industry over the past decade and capture more value from its vast mineral resources.
Indonesia’s nickel boom fades
The sector, however, is entering a tricky period marked by severe unpredictability.
Indonesia earlier raised benchmark nickel ore prices in an effort to generate more revenue, squeezing margins for processors. Jakarta’s policies around mining quotas and commodity exports have also caused uncertainty.
These measures sent nickel prices to their highest level since May 2024, with prices almost touching US$20,000 ($27,859) per tonne in April.
At the same time, demand from China, the top electric vehicle market, has weakened as automakers increasingly favour battery chemistries that use little or no nickel.
The shift has prompted some Chinese processors to switch from producing nickel sulphate for batteries to refined nickel metal, contributing to rising global inventories and weighing on prices.
The metal pileup has been particularly pronounced in China, where nickel stocks held in Shanghai Futures Exchange warehouses have nearly doubled since the beginning of the year, as Reuters columnist Andy Home wrote.
Despite high inventories and low prices providing an incentive for exports, China remains a major net importer as the country continues to stockpile the metal.
Macquarie analysts estimate the Chinese Government absorbed around 150,000 tonnes of nickel last year as it built strategic reserves of the critical mineral, with the bank expecting further strategic buying this year.
Sulphur cost impacts
Adding to the industry’s difficulties is the surge in sulphur prices following the war in the Middle East.
Sulphur is a critical input in the HPAL process, and Indonesian processors source around three-quarters of their supply from the Middle East. Disruptions have therefore forced some producers to reduce output while significantly increasing operating costs.
HPAL plants represent a rapidly growing share of Indonesia’s nickel industry. Last year, they produced around 450,000 tonnes of nickel, representing more than 10% of global production.
The process is particularly sensitive to sulphur prices. HPAL operations require roughly 10 tonnes of sulphur for every tonne of nickel produced, meaning every US$100 increase in sulphur prices adds around US$1,000 per tonne to production costs, according to Red Door Research Managing Director Jim Lennon.
“HPAL producers in Indonesia, which had been at the bottom of the cost curve, are now at the top. We’ve seen some of them being forced to cut production by up to 50% as a result,” Lennon told S&P Global earlier this year.
Even if sulphur prices retreat, Lennon expects the impact on the nickel industry’s cost structure to be long lasting.
Supply outlook tightens
With Indonesian processors facing pressure from higher costs, weaker prices, and government policy changes, analysts are reassessing the country’s production outlook.
Jakarta has reportedly set its 2026 national nickel ore mining quota, known as the RKAB, at approximately 260–270 million tonnes. That represents a sharp decline from the 379 million tonnes approved in 2025.
The tighter supply outlook comes as the global nickel market moves towards a significant shift after several years of oversupply.
Earlier this year, the International Nickel Study Group forecast a global nickel deficit of 32,000 tonnes in 2026, following three consecutive years of large surpluses.
While relatively modest compared with the estimated 283,000-tonne surplus last year, the forecast represents a sharp reversal from the group’s October projection for a 261,000-tonne surplus.
Could Canada benefit?
Indonesia’s dominant position in global nickel supply is unlikely to be challenged anytime soon. However, tightening production raises the question of whether other major nickel jurisdictions could play a greater role in balancing the market.
Canada offers one potential source of additional supply, combining a sizeable nickel reserve base with relatively low jurisdictional risk. The country accounts for around 2% of global nickel reserves, according to government estimates.
Most Canadian production is concentrated in Ontario and Québec, which together account for nearly 80% of national output and host established operations run by major producers including Glencore (LSE:GLEN) and Vale (NYSE:VALE).
Ontario, anchored by historic mining centres such as Greater Sudbury, is also home to emerging large-scale developments including the Crawford Nickel Project near Timmins.
The province remains prospective for new nickel sulphide discoveries. Multi-element explorer Transition Metals (TSX-V:XTM) has assembled several projects along or near major geological structures in the region.
In Québec, another established nickel sulphide jurisdiction, Renforth Resources (CSE:RFR) has identified a roughly 20km-long mineralised structure and an open-pit nickel resource at its Victoria discovery, part of the larger Malartic Metals Package property.
Further west, Saskatchewan is also emerging as an exploration target due partly to its proximity to Manitoba’s producing Thompson Nickel Belt. Despite its geological potential, the province has historically seen relatively limited exploration for magmatic nickel sulphide deposits.
Fathom Nickel (CSE:FNI) has established an early position in Saskatchewan, with three properties comprising 70 mineral claims covering 123,702 hectares. Its portfolio includes a historic mine that operated between 1965 and 1969 with a reported production grade of 3.28% nickel.
As Indonesia’s processors contend with rising costs and tighter production limits, the changing market dynamics could provide an opportunity for alternative nickel jurisdictions to attract greater attention.
Write to Jackson Chen at Mining.com.au
