Nickel Analysis — The Quota That Hasn't Reached the Metal

Indonesia has spent 2026 constraining nickel ore supply and the constraint is real, yet LME stocks reached 278,790 tonnes on 17 September — above both their July and August levels — while three-month nickel sits around the mid-$16,000s rather than revisiting May's $20,000 peak. Jakarta has tightened the ore market without creating a corresponding shortage of the Class 1 metal deliverable against the exchange, and it is now selectively approving revisions without disclosing by how much.

TL;DR

Indonesia entered 2026 with a sharply tighter nickel-ore approval regime. Reported cumulative approvals moved from approximately 190 million tonnes in April, through around 210 million tonnes against a 260 million-tonne target, towards roughly 250–260 million tonnes by late June. There has never been one clean, fixed national 2026 quota number.
ESDM opened the formal RKAB revision process after second-quarter reporting, with applications due by 31 July. By 19 August, Director General Tri Winarno said revisions had been approved for roughly a dozen nickel companies — but declined to disclose either the additional tonnage or the companies involved.
The industry then disputed the implementation. On 24 August, the Indonesian Nickel Miners Association said its member miners had not received revised RKAB approvals. The gap between government announcement and industry experience has not produced a publicly disclosed aggregate revised tonnage.
ESDM has also explicitly said the revisions are not intended as a general increase in nickel production. Additional approvals are targeted at production shortfalls and smelters lacking raw material, with much of the adjustment directed towards lower-grade limonite.
That matters because market discussion of a possible effective quota of 300–350 million tonnes implies something much broader than the mechanism ESDM has publicly described.
The ore constraint is nevertheless real. Indonesia imported 8.57 million tonnes of nickel ore from the Philippines in the first half of 2026, up 65.1% year on year, while industry estimates put full-year imports at around 25 million tonnes.
The constraint still has not reached exchange-deliverable metal. LME stocks stood at 278,790 tonnes on 17 September, up from 266,172 tonnes on 31 July and approximately 268,362 tonnes at the end of August.
INSG's own outlook illustrates how dramatically the supply assumptions have changed. Its October 2025 forecast showed a 261,000-tonne global surplus for 2026; by April 2026 it was forecasting a 32,000-tonne deficit.
Investment Funds have nevertheless become more constructive, increasing LME nickel net length by 1,129.79 lots to +16,286.74 in the week to 11 September, the only net increase among the six LME metals tracked by Bloodstone.
Chinese refined pricing moved in the same direction, with SMM #1 refined nickel reaching RMB125,400/t on 17 September and the Jinchuan #1 premium rising to RMB4,250/t.
Indonesia has simultaneously provided processors with relief. From 15 September, the corrective factor used in pricing 1.2% nickel limonite fell from 26% to 14%, easing pressure on HPAL operators.

The Constraint Is Real. The Number Is Not.

The nickel market has spent much of 2026 discussing Indonesia's RKAB as though it were a single national quota. It is more accurately understood as an evolving collection of company-level approvals, revisions and production plans that together determine how much ore Indonesian miners can legally produce, and that distinction matters because the cumulative number has moved repeatedly. Reported approvals were around 190 million tonnes in April, subsequently around 210 million tonnes against a 260 million-tonne target, and by late June were being discussed in a range around 250–260 million tonnes. Industry estimates around 260–270 million tonnes became widely used as shorthand for the 2026 restriction, particularly against the much larger approvals available in the previous year, but ESDM itself said on 25 June that it had not yet decided a final total 2026 nickel RKAB figure.

The ministry then opened the formal revision mechanism, allowing companies to submit changes after reporting first-half performance, with applications due no later than 31 July. This was not an unrestricted reopening of the quota. On 10 July, Director General of Minerals and Coal Tri Winarno explicitly said nickel production would not be broadly increased: additional approvals were intended to meet shortages at domestic smelters and close gaps where realised production had fallen short, with the additions concentrated mainly in lower-grade limonite and smaller adjustments possible in higher-grade saprolite. That is materially different from a general relaxation towards 300–350 million tonnes.

The revision process subsequently moved from application to approval. After IIGCE 2026 on 19 August, Tri told reporters that ESDM had begun approving revisions for roughly a dozen nickel companies, alongside a similar number of coal companies, and indicated that some mines previously unable to operate because of RKAB issues could resume. But he did not disclose the companies or, more importantly, the additional production volume approved.

Five days later the industry provided a conflicting account. The Indonesian Nickel Miners Association, through adviser Djoko Widajatno, said its nickel-mining members had not received revised RKAB approvals, and other mining-industry representatives were still describing companies as waiting for the results of applications filed during July. Both accounts can be true if approvals had gone to companies outside the association, had not yet been formally communicated, or were at different administrative stages. What cannot currently be established from the public disclosures is the number that matters most to the market: how many additional tonnes of nickel ore have actually been authorised for 2026. That is the unresolved RKAB question.

The Market Is Pricing a Volume Jakarta Hasn't Disclosed

The distinction is important because nickel prices have repeatedly responded to expectations of greater Indonesian supply. Discussion earlier in the year centred on whether revisions could lift effective approved production towards 300–350 million wet metric tonnes, which would materially reduce the apparent gap between domestic ore availability and the needs of Indonesia's enormous processing industry.

Yet ESDM's public description of the revision mechanism does not resemble a blanket increase of that scale. In July, Tri described additions as limited and directed towards smelters short of feedstock. Minister Bahlil Lahadalia has framed the broader policy as a measured relaxation, consistent with the government's objective of preventing renewed oversupply from pushing nickel prices sharply lower. The result is an unusual information gap: Jakarta has confirmed that revisions are being approved but has not disclosed their aggregate volume, the ministry says the process is selective, industry representatives have questioned whether approvals have reached their members, and the market has nonetheless repeatedly traded expectations that the original restriction will ultimately be relaxed substantially.

That creates an asymmetry. If aggregate revisions eventually take effective approved production well above 300 million tonnes, the market will have confirmation for an outcome it has already spent months anticipating. If the final effective volume remains much closer to the previously discussed 260–270 million-tonne range, the supply constraint would be materially tighter than those expectations imply. The regulatory process is therefore no longer unannounced. The volume is.

The Ore Shortage Is Already Visible

Whatever the final RKAB number, there is little doubt that Indonesia has experienced a genuine ore constraint, and the clearest evidence comes from imports. Indonesia brought in 8.57 million tonnes of nickel ore from the Philippines during the first half of 2026, according to Indonesian statistics, up 65.1% from 5.19 million tonnes a year earlier. Weda received approximately 5.2 million tonnes, or 60.7% of the total, followed by Morowali at roughly 1.57 million tonnes, Kendari at 975,000 tonnes and Kolonodale at 713,000 tonnes.

FINI has estimated that Indonesian nickel-ore imports could reach around 25 million tonnes in 2026, compared with approximately 15.3 million tonnes from the Philippines in 2025, although the organisation has also cautioned that lower smelter utilisation could reduce the eventual requirement. Those flows matter because Indonesia is the centre of global nickel processing growth: domestic smelters and HPAL plants have expanded more quickly than available approved ore production, creating a market in which the world's dominant nickel-producing country increasingly imports raw ore from its neighbour to feed its own processing capacity.

Philippine supply is therefore acting as a pressure valve. It does not eliminate Indonesian ore tightness; it prevents that tightness from translating fully into lost processed output, and it is the first reason the quota has struggled to reach the benchmark nickel price.

The Quota Binds on Ore Before It Binds on LME Metal

The second reason is product structure. The LME nickel contract is settled against Class 1 nickel, while much of Indonesia's laterite system initially produces different nickel units: NPI and ferronickel for stainless steel, matte, and MHP for battery materials. Indonesia has also expanded Class 1 production and the boundaries between those routes have become increasingly fluid, but an ore shortage in Sulawesi still does not translate mechanically or immediately into a shortage of exchange-deliverable cathode.

The inventory data demonstrate the disconnect. LME stocks fell from 273,222 tonnes on 20 July to 266,172 tonnes on 31 July, which initially looked consistent with a tighter refined market, but the move did not persist. Stocks finished August at approximately 268,362 tonnes and then accelerated higher in September, reaching 278,790 tonnes by 17 September. That is approximately 12,600 tonnes above the 31 July level, an increase of about 4.7% in less than seven weeks, with stocks rising by more than 4,200 tonnes on 15 September alone. A market experiencing an immediate shortage of LME-deliverable nickel would not normally be expected to show that inventory pattern.

This does not mean the Indonesian constraint is irrelevant to price. Ore availability affects NPI, matte, MHP and ultimately refined conversion economics, and substitution and arbitrage transmit changes between different parts of the chain. But the transmission is neither immediate nor one-for-one. The quota has tightened Indonesian ore; it has not yet created scarcity in the metal sitting in LME warehouses.

INSG Has Already Rewritten the Balance

The scale of the Indonesian policy change is visible in the International Nickel Study Group's own forecasts. In October 2025, INSG expected global primary nickel production of approximately 4.08 million tonnes in 2026 against usage of around 3.82 million tonnes, implying a surplus of roughly 261,000 tonnes. Six months later, after Indonesia's tighter 2026 supply regime had become clearer, INSG changed the picture dramatically: at its April 2026 meetings it forecast global primary nickel production falling to 3.715 million tonnes and projected a 32,000-tonne deficit for the year.

That is not a disagreement between two organisations using different definitions. It is a reversal between successive INSG forecast vintages, and the swing from a 261,000-tonne expected surplus to a 32,000-tonne deficit — almost 300,000 tonnes of balance deterioration — shows how materially the Indonesian supply assumptions changed.

Yet the price response has not persisted. Nickel reached around $20,000/t during the supply scare in May before retreating towards the mid-$16,000s, while LME inventory has subsequently increased. That is perhaps the cleanest expression of the current nickel problem: the global balance forecast has tightened dramatically while the exchange-visible balance has not.

Sulphur Has Added a Second Constraint

Ore is not the only input restricting Indonesian production. HPAL plants require large volumes of sulphur or sulphur-derived acid to process low-grade laterite into battery intermediates, Indonesia is heavily dependent on imported sulphur, and the disruption to Middle Eastern supply through the Strait of Hormuz has sharply increased both availability risk and cost. Reuters reported in May that Indonesia sourced approximately 75% of its sulphur imports from the Gulf and that the squeeze had already forced production reductions, including Zhejiang Huayou Cobalt halting half of capacity at affected operations.

This is important because HPAL was supposed to be one of the mechanisms through which Indonesia converted its enormous low-grade limonite resource into growing battery-nickel supply. The ore quota restricted one input just as geopolitical disruption restricted another, a combination that helped drive nickel towards $20,000/t in May. It also helps explain Indonesia's latest policy response.

Jakarta Has Now Lowered the Cost of Low-Grade Ore

From 15 September, Indonesia changed the benchmark formula used to price low-grade nickel ore. For limonite containing 1.2% nickel, the corrective factor in the domestic HPM calculation was reduced from 26% to 14%, while the cobalt adjustment fell from 30% to 17%. The Indonesian Nickel Industry Forum welcomed the change, arguing that it provides greater financial stability to smelters facing rising operating costs, particularly HPAL facilities exposed to elevated sulphur prices, while the Indonesian Nickel Miners Association separately said the formula could improve the economics of lower-grade reserves.

The change matters for more than the invoice price of ore. Because the benchmark influences taxes and royalties, reducing the calculated HPM also lowers part of the fiscal burden associated with processing low-grade material. Indonesia has therefore tightened ore availability through RKAB while simultaneously changing the pricing formula to make the constrained low-grade ore cheaper for processors.

Those policies are not necessarily contradictory. The government's objective is not simply to maximise or minimise nickel production; it is attempting to balance downstream utilisation, mine economics, state revenue and the global price impact of Indonesian supply. The result is a policy regime that can constrain tonnes while easing unit economics, and for the market that makes the final effective RKAB volume even more important.

Funds Have Started Moving the Other Way

Against the backdrop of rising LME inventory, Investment Funds became more constructive in the week to 11 September, increasing nickel net length by 1,129.79 lots to +16,286.74. Long positions rose 2,926.09 lots to 49,582.53, while shorts increased by a smaller 1,796.30 lots to 33,295.79. Nickel was the only one of the six LME metals tracked by Bloodstone in which Investment Funds increased net bullish exposure during the week; copper, aluminium, zinc and tin all recorded lower net length, while lead became more net short.

The move should be kept in proportion. Both nickel longs and shorts increased, so the report shows growing participation on both sides rather than a one-way institutional bet. Investment Funds accounted for 15.21% of nickel long open interest and 10.21% of short open interest, leaving positioning much more balanced than in zinc, where funds represented 31.45% of long open interest and 16.51% of short. But the direction is notable precisely because exchange stocks are rising: funds became more bullish despite an inventory signal that still points towards ample Class 1 availability. The question is whether they are early.

China Has Provided Some Physical Confirmation

Chinese refined pricing strengthened over the same period. On 17 September, SMM #1 refined nickel averaged RMB125,400/t, up RMB2,200/t day on day, while the Jinchuan #1 refined nickel premium increased RMB400/t to RMB4,250/t, having been around RMB2,300/t a week earlier. The absolute Chinese price should not be compared mechanically with the LME dollar quote because SMM's domestic RMB prices are VAT-inclusive; the more useful physical signal is the movement in the premium.

There is modest confirmation further downstream. Stainless-steel social inventory across Wuxi and Foshan stood at 923,800 tonnes, down from 926,200 tonnes a week earlier, a decline of approximately 0.26%. That is supportive at the margin rather than evidence of a stainless demand surge: SMM continues to describe rigid peak-season demand as incompletely recovered, while lower prices and reduced mill production schedules contributed to the inventory movement.

The rest of the nickel chain is similarly mixed. Indonesian MHP and other battery-intermediate pricing have not strengthened in line with refined nickel, while NPI remains more closely tied to still-uneven stainless economics. The current signal is therefore selective, with Class 1 pricing and the Jinchuan premium firming while the wider nickel complex remains considerably less convincing.

The Quota Still Hasn't Reached the Metal

Eight months into Indonesia's tighter 2026 regime, the distinction is increasingly clear. The policy has reached the mine, Philippine ore flows, Indonesian smelter utilisation and HPAL economics. It has interacted with a severe sulphur shock. It has been significant enough for INSG to move from forecasting a 261,000-tonne global surplus to a 32,000-tonne deficit. It still has not produced a shortage of LME-deliverable nickel, and stocks at 278,790 tonnes are higher than they were before the July RKAB revision window closed — difficult to reconcile with an immediate Class 1 scarcity argument, irrespective of how constrained parts of the Indonesian ore market have become.

The market's next phase therefore depends less on proving that Indonesian ore is tight, which has already been established, and more on whether the constraint finally propagates through the processing chain strongly enough to remove refined units from visible inventory. There are several routes by which that could happen. A tighter-than-expected effective RKAB outcome would restrict domestic ore more severely than the market assumes. Philippine imports may prove insufficient or uneconomic to close the gap. Continued sulphur disruption could force deeper HPAL production cuts. Stronger stainless demand could absorb more NPI and reduce the ability of the wider nickel system to redirect units. Alternatively, Class 1 production and conversion could continue filling exchange warehouses even while other nickel products remain constrained — which is broadly what the market has experienced so far.

What Would Make the Ore Story a Metal Story

The clearest confirmation would be a sustained reversal in LME stocks. A move below 250,000 tonnes would not in itself prove a global nickel shortage, but it would represent a meaningful break from the accumulation that has characterised the latest phase of the market. More important would be the combination of falling exchange inventory with stronger Chinese refined premiums, firmer NPI and improving stainless demand.

The second trigger is regulatory. ESDM has told the market that RKAB revisions are being approved; it now needs to reveal enough volume information for the market to establish whether the process amounts to limited gap-filling or a material restoration of Indonesian ore supply. The third is HPAL, where the new HPM formula provides cost relief but continued sulphur disruption could overwhelm part of that benefit. Further verified production cuts would matter because they would remove battery intermediates rather than simply make them more expensive to produce.

Until one or more of those conditions emerge, nickel remains a market with a genuine upstream constraint and an abundant exchange-visible downstream product. That is why the quota has mattered enormously to the industry while producing a much less durable effect on the benchmark price.

Outlook

Base case: Indonesian ore remains constrained, but selective RKAB revisions, Philippine imports and the new low-grade ore pricing formula prevent the restriction from developing into an acute shortage of processed nickel. LME Class 1 inventory remains elevated, while Chinese refined premiums stay firmer than earlier in September without signalling system-wide scarcity.

Upside risk: The aggregate RKAB revision proves materially smaller than the market has assumed, sulphur disruption forces further HPAL cuts, Philippine ore cannot compensate and LME stocks begin a sustained decline. Stronger stainless demand alongside those developments would broaden the tightening beyond Class 1 premiums.

Downside risk: ESDM ultimately approves a substantially larger effective 2026 ore volume, the new HPM formula improves HPAL economics, Philippine imports continue increasing and Gulf sulphur supply normalises. With LME stocks already at 278,790 tonnes, additional processed supply would reinforce the visible inventory overhang.

What would change the view: Publication of sufficient RKAB volume data to establish the effective 2026 Indonesian ceiling is the immediate policy trigger. In the physical market, a sustained LME stock draw, rather than another temporary decline, would be the clearest evidence that Indonesia's ore constraint is finally reaching exchange-deliverable metal.

Key Risks

The RKAB is not a single national number. Indonesian approvals are company-specific and have changed throughout the year. Figures such as 260–270 million tonnes indicate the restrictive regime but should not be presented as a final immutable national ceiling.
Nickel units are not interchangeable. Ore, NPI, ferronickel, matte, MHP, nickel sulphate and Class 1 refined nickel occupy different parts of the processing chain, so Indonesian ore scarcity can coexist with rising LME stocks.
The revision volume is undisclosed. ESDM says revisions are selective and targeted at production shortfalls and smelter feedstock, but has not published aggregate additional tonnage. Market expectations of a much larger effective quota may prove correct; they cannot yet be verified.
Government and industry accounts conflict. ESDM said approvals had begun for roughly a dozen nickel companies on 19 August; the miners' association said on 24 August that its members had not received them.
The fund move is one COTR week. Nickel was the only tracked metal with increased net bullish exposure, but both longs and shorts rose. It is a change in direction rather than one-sided conviction.
Chinese quotes are VAT-inclusive. SMM domestic RMB nickel prices cannot be compared directly with LME dollar prices without adjustment.
The wider chain is not confirming. MHP and battery-intermediate pricing have not strengthened in line with refined nickel, and NPI remains tied to uneven stainless economics.
Policy can move both ways at once. Jakarta is constraining tonnes through RKAB while easing unit economics through the HPM formula, so the net effect on processed output is not directionally obvious.

Intelligence Monitoring Points

Aggregate RKAB volume, where the number of approved tonnes matters considerably more than the number of approved companies.
LME inventory, at 278,790 tonnes on 17 September against 266,172 tonnes on 31 July and approximately 268,362 tonnes at end-August, with a sustained reversal the clearest evidence of upstream tightness reaching Class 1.
Philippine ore supply, at 8.57 million tonnes in the first half and a FINI full-year estimate of roughly 25 million tonnes, as the substitution mechanism cushioning Indonesian smelters.
Sulphur availability and HPAL utilisation, given Indonesia's dependence on Gulf supply and continuing Hormuz disruption.
The new low-grade ore benchmark, where the 1.2% limonite corrective factor has fallen from 26% to 14%, and its effect on transaction prices, royalties and HPAL operating rates.
Chinese physical pricing, at RMB125,400/t for SMM #1 refined and RMB4,250/t for the Jinchuan premium, with persistence in the premium mattering more than the outright quote.
Investment Fund positioning, at +16,286.74 lots net long after a 1,129.79-lot increase, where continued accumulation alongside falling LME stocks would be considerably more significant than the current combination of rising fund length and rising inventory.

FAQ

What is Indonesia's 2026 nickel quota? There is no single final aggregate figure publicly disclosed that captures the entire evolving 2026 RKAB process. Cumulative approvals increased through the first half, while figures around 260–270 million tonnes became widely used as an indication of the tighter regime. ESDM subsequently opened revisions and says approvals have begun, but has not disclosed the aggregate additional tonnage.

Have RKAB revisions actually been approved? According to ESDM, yes. Tri Winarno said on 19 August that revisions had been approved for roughly a dozen nickel companies. However, he did not identify the companies or volumes, and the miners' association subsequently said its members had not received revised approvals at that point.

Is Indonesia broadly increasing nickel production quotas again? That is not how ESDM has described the process. On 10 July, Tri said additions were intended to address production shortfalls and supply smelters lacking raw material rather than represent a significant general increase, with much of the adjustment involving low-grade limonite.

If Indonesian ore is tight, why are LME stocks rising? Because the constraint enters the supply chain at a different point from the LME contract. Indonesia's laterite ore feeds NPI, ferronickel, matte, MHP and increasingly refined nickel, while only qualifying Class 1 nickel is deliverable against the contract. Philippine imports and conversion between nickel products also weaken the immediate transmission.

How high are LME nickel stocks now? Stocks stood at 278,790 tonnes on 17 September, compared with 266,172 tonnes on 31 July and around 268,362 tonnes at the end of August.

How much ore is Indonesia importing from the Philippines? Indonesia imported 8.57 million tonnes during the first half of 2026, up 65.1% year on year. FINI has estimated full-year imports at roughly 25 million tonnes, although the eventual figure depends partly on Indonesian smelter utilisation.

Is the global nickel market in surplus or deficit? INSG's latest April 2026 forecast was for a 32,000-tonne deficit, a major reversal from its October 2025 forecast of a 261,000-tonne surplus for the same year, reflecting materially changed supply assumptions.

What changed in Indonesia's ore-pricing formula? Effective 15 September, the corrective factor used for 1.2% nickel limonite was reduced from 26% to 14%, while the cobalt adjustment fell from 30% to 17%. The change lowers the benchmark pricing of low-grade ore and provides cost and fiscal relief to processors, particularly HPAL operators.

Are funds becoming bullish on nickel? At the margin. Investment Funds increased net LME nickel length by 1,129.79 lots to +16,286.74 in the week to 11 September, the only one of the six tracked metals with increased net bullish exposure, although both longs and shorts rose.

What would confirm a genuine nickel tightening? A sustained decline in LME stocks accompanied by persistent Chinese refined premiums, stronger stainless demand and tighter pricing across NPI and battery intermediates. On policy, disclosure of an effective aggregate RKAB volume materially below market expectations would strengthen the supply-side argument.

Data and source note: Indonesian RKAB policy and revision-process statements are based on ESDM releases and statements by Director General of Minerals and Coal Tri Winarno, supplemented by Indonesian industry reporting. ESDM stated on 25 June that no final aggregate 2026 nickel RKAB figure had then been determined; on 10 July it described revisions as targeted principally at smelter feedstock shortages rather than a broad production increase; and on 19 August said revisions had begun to be approved for roughly a dozen nickel companies without disclosing aggregate tonnage. The Indonesian Nickel Miners Association subsequently said its member nickel miners had not received revised approvals as of 24 August. Indonesian nickel-ore import figures are based on Indonesian statistics as reported by Indonesian industry sources. LME inventory figures are reported warehouse stocks: 273,222 tonnes on 20 July, 266,172 tonnes on 31 July, approximately 268,362 tonnes at end-August and 278,790 tonnes on 17 September. INSG's 261,000-tonne 2026 surplus and 32,000-tonne deficit are different forecast vintages — October 2025 and April 2026 respectively — and should not be interpreted as simultaneous competing estimates. LME Investment Fund positioning refers to the London Metal Exchange MiFID II Weekly COTR report for positions as at 11 September 2026, Investment Funds category, non-risk-reducing, reported in lots. Chinese refined nickel, premium and stainless data are from Shanghai Metals Market through 17 September 2026. SMM domestic RMB nickel prices are VAT-inclusive and should not be compared directly with LME dollar prices without appropriate adjustment.

Sources

This document is published by Bloodstone Research for informational and institutional research purposes only. It does not constitute investment advice, an investment recommendation, an offer or solicitation to buy or sell any financial instrument, commodity or security, or a forecast of future performance. Market conditions and data may change without notice. Readers should conduct their own analysis and, where appropriate, seek independent professional advice before making investment decisions. For institutional enquiries contact research@bloodstonecapital.co.uk.

Nickel analysis — 2026-09-18