A persistent nickel ore shortage in Indonesia is raising costs for producers even as a wider global surplus in the refined metal caps prices, according to a market summary this week by commodity analyst CRU.
Permitting issues are a key reason for the ore scarcity. In the first half of 2025, nickel ore imports from the Philippines to Indonesia surged by 154% year-over-year to address the deficit. The ore tightness has led to Indonesian nickel ore producers selling at a premium of about $28 per tonne over the reference mineral price, an amount not included in official price reports.
This has pushed CRU’s estimated all-in sustaining costs (AISC) for nickel pig iron (NPI) in Indonesia to a range of $10,500 to nearly $16,000 per tonne of nickel. By comparison, PT Merdeka Battery Materials produced about 82,000 tonnes of Indonesian nickel in NPI last year at an AISC of $11,200 per tonne or less.
“Most producers agreed that nickel prices will remain at around $15,000 per tonne for the remainder of the year, with CRU forecasting that nickel will remain in surplus to the end of the decade,” BMO Capital Markets wrote in a note on Thursday.
The production cost may become excessive if fuel, labour and royalty costs tick higher. Indonesian smelters have already asked the government to delay planned royalty hikes until prices recover towards $17,000 per tonne, arguing that current margins are too thin to absorb additional levies.
Main producer
Indonesia accounts for more than half of global nickel production with 2023 output of 2.2 million tonnes, according to a U.S. Geological Survey report. The country, rife with Chinese miners supported by Beijing subsidies, has often been blamed for lower nickel prices in recent years, threatening the economic feasibility of many projects in the West.
The ore and costs issue, which gained wider exposure at last month’s Nickel Producers, Processors and Buyers conference in Jakarta, highlights the balance between global demand and local supply chain challenges. The split between short-term ore tightness and longer-term refined surplus is setting the tone for producers and investors weighing expansion plans.
The persistent shortfall of domestic laterite ore is linked to Work Plan and Budget approvals, known by the Indonesian acronym RKAB. The broader market picture remains negative. Projections from the International Nickel Study Group point to another large surplus in refined nickel this year as new supply outpaces demand growth from stainless steel and batteries.
Jakarta has been revisiting how RKAB production quotas are set and policed. Officials signalled a shift back to one-year quotas to better control supply, after a brief move to three-year terms in 2023, and floated higher royalties. Those policy currents, coupled with mine-site bottlenecks and weather, have left smelters competing for higher-grade saprolite and paying premiums that CRU noted don’t show up in benchmark prices.
New pricing
Private-market pricing is beginning to surface, highlighting the need for benchmarks closer to where costs are occurring. Fastmarkets in July launched domestic Indonesia nickel-ore assessments for 1.6% and 1.2% nickel laterite trades. Independent market trackers including the Shanghai Metals Market and regional commodity bulletins have pegged mainstream Indonesian laterite premiums in recent weeks around $24–28 per wet tonne, broadly in line with the levels discussed in Jakarta that CRU mentioned.
What happens next hinges on policy execution and ore logistics as much as on macro demand, CRU said. If Indonesia tightens RKAB quotas to smooth the supply-demand balance — as ministers have suggested — and if domestic mining approvals catch up, ore premiums could ease and cost pressure might abate into 2026.
Conversely, a prolonged reliance on imported ore from the Philippines could embed higher, off-index input costs into NPI, while broader market surpluses cap any price relief for producers, CRU said. Either path reinforces a key theme from Jakarta: in nickel’s current landscape, tightness in the raw material can coexist with an abundance in refined metal.
