For half a decade the nickel story was a story about surplus. Indonesia built an industrial machine that flooded the world with metal, prices ground lower, and producers from Australia to New Caledonia to Canada were forced offline because they simply could not compete with the cost curve Jakarta had engineered. That narrative is now inverting. The global nickel market is heading toward its first supply deficit in five years, and the reasons are no longer about geology or demand growth; they are about policy and geopolitics. Rising uncertainty over Indonesia’s export and production rules, compounded by a sulphur supply shock stemming from the war involving Iran, has pushed the market’s central forecasters to flip their balances from surplus to deficit and lifted the price of refined nickel to its highest level in two years.
The International Nickel Study Group (INSG) now projects a 2026 deficit of roughly 32,000 tonnes, a striking reversal from the 283,000-tonne surplus it had earlier pencilled in for 2025. On the group’s latest numbers, global primary nickel production of about 3.715 million tonnes will fall short of consumption of around 3.747 million tonnes. The swing is modest in tonnage terms but enormous in signalling terms: it tells the market that the era of structural oversupply, the defining feature of the post-2020 nickel landscape, may be ending sooner than almost anyone expected. For traders, refiners and battery-chain buyers, the questions are no longer academic. They are about feedstock security, contract pricing, and how much of Indonesia’s policy theatre is real.
The quota squeeze at the centre of everything
Indonesia is the fulcrum. The country accounts for well over half of global mined nickel supply, and its decisions on how much ore its miners may dig set the marginal tonne for the entire market. The mechanism that matters here is the RKAB, the annual work plan and budget that each miner must have approved before it can produce. For 2026, the Ministry of Energy and Mineral Resources (ESDM) approved an aggregate nickel-ore allocation of around 270 million wet metric tonnes, down sharply from roughly 375–379 million tonnes approved for 2025, and well below the roughly 345 million tonnes the processing sector says it needs to run at full tilt.
That gap, on the order of 80 to 100 million wet metric tonnes between approved supply and smelter appetite, is the single most important number in the market right now. If it holds, analysts estimate it could pull smelter utilisation rates down from around 90 percent toward 70–75 percent over the course of 2026, starving the high-pressure acid leach (HPAL) and rotary-kiln electric-furnace (RKEF) plants that turn Indonesian laterite into the intermediates and refined units the world’s stainless and battery industries consume. ESDM officials have signalled they may push the effective production target even lower, toward 250–260 million tonnes, framing the cut as a deliberate tool to manage prices and conserve a national resource the government believes has been sold too cheaply for too long.
The execution has been anything but smooth, and that is precisely where the “policy uncertainty” phrase earns its place in the headlines. In October 2025 Jakarta reorganised the quota regime, requiring companies to reapply for previously issued 2026 and 2027 allocations under a tighter framework. The approval process dragged into the second quarter of 2026, reaching roughly 90 percent completion only around mid-April, with approved volumes near 210 million tonnes at that point. Some large operators reportedly absorbed allocation cuts of more than 70 percent. For a market that prices on forward visibility, an opaque, slow-moving and reversible permitting cycle is itself a bullish input, because it injects a permanent risk premium into every tonne of Indonesian feedstock.
Indonesia nickel-ore allocation: the squeeze in numbers
| Metric | 2025 | 2026 |
| Approved RKAB ore allocation (mn wmt) | ~375–379 | ~270 |
| Processing-sector requirement (mn wmt) | n/a | ~345 |
| Estimated smelter utilisation | ~90% | 70–75% |
| INSG global balance (tonnes) | +283,000 | −32,000 |
Sources: ESDM / Argus Media, Benchmark Mineral Intelligence, S&P Global, INSG. Figures are approximate and subject to revision as RKAB approvals finalise.
The Iran war and the sulphur shock
If the quota story is about how much ore comes out of the ground, the second leg of the deficit thesis is about whether Indonesia’s refineries can process the ore they do receive. The answer increasingly depends on sulphur and on the Strait of Hormuz. HPAL plants, the technology behind Indonesia’s battery-grade nickel ambitions, are enormous consumers of sulphuric acid. Industry estimates put consumption at roughly 8 to 12 tonnes of elemental sulphur, equivalent to perhaps 24 to 36 tonnes of sulphuric acid, for every tonne of contained nickel produced as mixed hydroxide precipitate (MHP) or mixed sulphide precipitate (MSP), the key intermediates feeding the EV battery supply chain.
More than 75 percent of Indonesia’s sulphur imports arrive from the Middle East. The war involving Iran, and the associated disruption to maritime traffic through the Strait of Hormuz, has put that lifeline under direct threat. The price signal was already alarming before the conflict escalated: sulphur delivered to Indonesia climbed from around USD 101 per tonne in mid-2024 to roughly USD 554 per tonne by January 2026, a rise of more than 400 percent, and the Abu Dhabi National Oil Company set an April official selling price near USD 600 per tonne. A simultaneous Chinese export ban on sulphur in April 2026, layered on top of the Hormuz disruption, is estimated to have removed somewhere between 4 and 8 million tonnes of elemental sulphur from accessible global supply, hitting both of the channels, Chinese exports and Middle Eastern feedstock for domestic acid plants, that Indonesian HPAL operators have relied on.
The operational consequences are already visible. Several Indonesian nickel processors curtailed output by at least 10 percent from the middle of March 2026 as acid supplies tightened and costs spiked. This matters far beyond a single quarter’s tonnage. The entire economic case for Indonesian HPAL, the cost advantage that drove competitors out of business, was built on two assumptions: cheap sulphuric acid and predictable export logistics. Both assumptions are now in question at the same moment. A prolonged closure or sustained disruption of Hormuz would not merely raise costs; it could idle the very plants that produce the battery-grade intermediates the world is counting on for the energy transition, converting a cost problem into an outright volume problem.
‘Septembergate’: the state takes the export channel
Overlaying the quota and sulphur stories is a structural change to how Indonesia sells its commodities at all. On 20 May 2026, President Prabowo Subianto announced that exports of coal, palm oil and ferroalloy would be routed through a single state-owned channel: PT Danantara Sumberdaya Indonesia (DSI), a subsidiary of the sovereign wealth fund, would become the sole exporter of record. The market has largely fixed its attention on the January 2027 date for full enforcement, but the operational gate opens far sooner, on 1 September 2026, and that earlier deadline is the one practitioners should be watching.
The logic of the new regime differs fundamentally from the policy that built Indonesia’s nickel industry. The 2020 ore-export ban was industrial policy: force value-add onshore, build a downstream, and capture the processing margin. By that yardstick it worked spectacularly: Indonesian nickel exports grew from roughly USD 3.3 billion in 2018–19 to around USD 33 billion in 2023–24. The 2026 regime is not trying to build anything new. It is trying to capture the trader margin, the spread that international houses earned by buying at domestic prices and reselling at exchange benchmarks. Jakarta has paired the single-channel model with a requirement that, from June 2026, the full value of natural-resource export earnings be held in Indonesian state-owned banks, and with reviews of below-benchmark long-term offtake contracts.
The execution risk is considerable, and it is the reason “Septembergate” has entered the lexicon. DSI has no trading track record, no treasury operating at the scale required to finance tens of billions of dollars of commodity flow, and no established blending infrastructure for coal grades that buyers order to precise specifications. Standing all of that up in a matter of weeks is a tall order. The plausible base case among sceptics is not that the policy is abandoned but that DSI assumes the role without the full capability, generating real flow friction in the September-to-January window: friction that, in commodities where Indonesia sets the marginal price, transmits straight into global benchmarks. One structural weakness deserves emphasis on the nickel side: with roughly 94 percent of Indonesia’s nickel exports going to China in the first half of 2025, a single state seller faces a near-monopsony buyer that can simply decline to transact at supranormal prices. Jakarta’s pricing leverage may be weaker than the policy framing suggests.
The coal front: Chinese buyers dig in
The headline that has accompanied the nickel-deficit story (that Jakarta is being urged to scrap its export-control push as Chinese buyers halt coal purchases) is, at heart, about leverage and trust. Indonesia has spent more than a year trying to impose its government-set benchmark, the Harga Batubara Acuan (HBA), on coal exports. China, the country’s largest customer, has largely refused to play along, continuing to price off the market-based Indonesian Coal Index (ICI) and citing concerns about the HBA’s transparency, the frequency of its updates, and the premium it carries. At various points the HBA has sat well above competing benchmarks, for example around USD 124 per tonne for premium coal against a meaningfully lower Newcastle futures price, giving Chinese buyers every commercial reason to resist.
The resistance has teeth. Port congestion and inventory build-ups have prompted Chinese majors, including Shenhua, to halt spot purchases, and Chinese importers have made clear they are willing to pivot to alternative suppliers if Indonesia’s lower production quotas curb exportable volumes. The supply backdrop is dramatic in its own right: Jakarta is steering total coal output down from roughly 790 million tonnes in 2025 toward about 600 million tonnes in 2026, a contraction of nearly a quarter, while seaborne exports fell to around 495 million tonnes in 2025 from 555 million tonnes a year earlier, the first annual decline since 2020. The pressure on Jakarta to soften or scrap the benchmark push reflects a simple commercial reality: a price floor is only as strong as the buyer’s willingness to pay it, and Indonesia’s biggest buyer has options.
Coal matters to the nickel story for a reason that is easy to miss. Indonesia’s smelting complex is overwhelmingly coal-powered, and the same state apparatus now reaching for control of coal pricing and coal exports is the apparatus setting nickel-ore quotas and routing nickel-related exports through DSI. The coal standoff is therefore a useful tell. It demonstrates both the government’s appetite to use export policy as a pricing lever across its commodity complex and the limits of that strategy when confronted with a concentrated, price-sensitive buyer base. What Beijing’s coal importers are doing today (resisting, diversifying, waiting Jakarta out) is a preview of the dynamic that could play out in nickel under the DSI regime.
A decade of resource nationalism, on the record
None of this is new in kind, only in degree. Indonesia’s use of export restrictions to reshape its mineral economy is one of the most thoroughly documented cases in modern trade policy and the pattern with unusual clarity. The single most consequential entry is the 2019 measure under which the Ministry of Energy and Mineral Resources, via regulation 11/2019, banned the export of nickel ore with a nickel content below 1.7 percent effective 1 January 2020, a move that pulled the ban forward by more than two years from its previously planned 2022 start. GTA classifies the measure as trade-distorting (“Red”), with China, Japan, Ukraine and North Macedonia named among the affected exporters of record. The stated purpose, as Indonesian officials told reporters at the time, was to accelerate smelter construction at home. It did exactly that.
The record shows this was no one-off. Across the 2014–2019 period, Indonesia repeatedly tightened, relaxed and re-tightened restrictions on mineral ore exports: an export-license regime change for mineral ores in 2017, amended export taxes on processed products, a repatriation obligation on natural-resource export revenues, and successive updates to the raw-ore export ban. The through-line is a state that treats export policy as a dial to be turned in service of downstream industrial development and, increasingly, price and revenue capture. For an analyst pricing 2026 risk, that history is the base rate: when Jakarta signals it will use export and production controls aggressively, the track record says it means it, even if the precise timing and implementation remain unpredictable.
Note: Global Trade Alert coverage is deliberately bounded: it records unilateral, discriminatory measures from November 2008 onward and excludes multilateral agreements and certain notified measures. The 2026 RKAB and DSI changes may not yet be fully indexed given the database’s typical two-to-four-week publication lag.
Price action: the market has started to believe
Prices have moved decisively on this confluence of risks. The London Metal Exchange three-month nickel contract rallied roughly 37 percent from late December 2025 to April 2026, and by 6 May 2026 had reached around USD 20,000 per tonne, the highest level since May 2024. That is a remarkable turn for a metal that spent much of the prior two years languishing under the weight of Indonesian oversupply. Crucially, the move has been validated by the analyst community rather than dismissed as a squeeze: INSG flipped its 2026 balance from a 283,000-tonne surplus to a 32,000-tonne deficit, and Macquarie lifted its 2026 nickel forecast by around 18 percent to roughly USD 17,750 per tonne, arguing that tighter Indonesian quotas convert a previously expected surplus of around 90,000 tonnes into a deficit and establish a price floor near USD 17,000–18,000 per tonne.
The bull case and the bear case both run through Jakarta. The upside is straightforward: if quotas stay tight, if HPAL plants keep curtailing on acid shortages, and if the DSI export channel disrupts flow, the deficit deepens and prices grind higher. The downside is equally a policy story. Indonesia has reversed course before, and the levers that created the squeeze can be loosened just as quickly. If RKAB allocations are revised upward, if ore imports rise to plug the feedstock gap, or if the HPM domestic pricing reference is softened, the 2026 deficit could shrink or disappear with little warning. As one widely cited analysis put it, Indonesian policy is the key upside risk to supply, but it is a symmetric risk, and the same hand that giveth can taketh away. That two-sidedness is exactly why a durable risk premium, rather than a one-way bet, is the rational posture.
What it means for the trade
For physical buyers and refiners, the immediate priority is feedstock and acid security. The vulnerability of HPAL economics to Middle Eastern sulphur is no longer a tail risk to be noted in an appendix; it is a live exposure that belongs in procurement planning, with diversified acid sourcing and inventory buffers treated as insurance rather than cost. Battery-chain buyers reliant on Indonesian MHP and MSP should stress-test their supply against a scenario in which Indonesian intermediate output falls by double digits for two or three quarters, and should be asking suppliers hard questions about acid contracts and contingency.
For trading houses, the DSI regime is a direct threat to the margin model that has underpinned Indonesian commodity flow. The spread between domestic purchase prices and international benchmarks, the logistics-and-blending margin, is precisely what the state intends to capture. Counterparty diligence on Indonesian volume now has to include a new question that did not exist a year ago: what happens when your counterparty is a state entity with no trading history and a sovereign step-in clause hanging over the offtake? For project finance, that sovereign step-in risk has migrated from an emerging-markets footnote to a standard covenant question, and Indonesian project debt is likely to reprice at its next refinancing window.
The wider signal is about contagion. A working DSI prototype (a resource-rich, fiscally motivated government inserting itself as sole exporter to capture trader margin) is a template other producers are watching. The Democratic Republic of the Congo, Guinea, Chile and Zimbabwe have all been mentioned as candidates for variations on the theme. Whether 2026 is remembered as an Indonesian idiosyncrasy or the opening move of a broader resource-nationalism cycle will depend in part on three near-term signals worth tracking: the first DSI tender or contract execution, which will reveal whether the entity can actually trade the volumes it controls; the trajectory of any WTO challenge, with Japan and the European Union the most likely complainants; and the first copycat announcement from a peer jurisdiction.
Conclusion
The nickel market has spent five years being defined by what Indonesia could produce. In 2026 it is being defined by what Indonesia chooses to allow, and by a war thousands of miles away that controls the sulphur its refineries cannot run without. The projected deficit is small in tonnes but large in meaning: it marks the moment the market stopped treating Indonesian supply as a given. For tariff and trade-policy practitioners, the lesson is that export controls, production quotas and state export monopolies are no longer peripheral risks to a commodity thesis; in nickel, they are the thesis. The prudent stance is neither to assume the squeeze is permanent nor to bet on a swift Indonesian reversal, but to price the uncertainty itself, because in this market, uncertainty is the one input Jakarta is supplying without restriction.