Indonesia's Nickel Supply Squeeze Sends Prices to Multi-Year Highs Amid US-China Rivalry
Indonesia has cut mining quotas and approved a new export tax, tightening supply from the country that produces more than 60% of the world's nickel and pushing prices to a two-year high. The squeeze coincides with a new US-Indonesia commodities deal that analysts say challenges China's entrenched position in the market.
Indonesia Tightens the Tap
Indonesia, which according to Goldman Sachs accounts for more than 60% of global nickel mine supply, has moved on two fronts to restrict how much of the metal leaves the country. The government has approved a new nickel export tax, Mining.com reported, and separately cut mining quotas under its RKAB permitting system "significantly," according to Benchmark Mineral Intelligence. Both measures reduce the volume of ore and processed nickel reaching international buyers from the world's largest supplier.
Prices Answer the Squeeze
The market has responded quickly. Bloomberg reported nickel rising to a nine-month high after Indonesia signaled plans to cut output, and later to a two-year high as supplies from the country tightened further. Goldman Sachs said the earlier rally, in which the base metal jumped more than 30% between mid-December and January, was "largely driven" by Indonesia's decision to restrict how much ore could be mined domestically. Mysteel reported that nickel futures on the Shanghai Futures Exchange (SHFE) moved in tandem with the international benchmark, reflecting how closely Chinese processors track Indonesian supply decisions.
"Now Indonesia's supply decisions are the lever the market is watching," said Lavinia Forcellese, a commodities analyst with Goldman Sachs Research. "Relatively small changes in policy or approvals can have an outsize impact on global balances and prices."
Washington Enters the Fray
The supply squeeze coincides with a new trade agreement between the United States and Indonesia, finalized on Thursday, that gives Washington what the South China Morning Post described as "unrestricted access" to Indonesia's industrial commodities, including nickel. Analysts said the deal is designed to challenge China's dominant, "preferential" position in a market it has built through years of investment in Indonesian smelters and mining projects, as detailed in a separate analysis by the National Bureau of Asian Research on China's influence in Indonesia's nickel sector.
Beijing's Countermove
"[The US-Indonesia deal] is quite important and China will not like it," said Alicia Garcia-Herrero, chief economist for the Asia-Pacific region at Natixis. She said China retains leverage through its large stakes in Indonesian nickel mines and could respond by slowing technology transfers or pulling back investment. Analysts told the South China Morning Post that Beijing is likely to accelerate investment in alternative sources of nickel supply and deepen its role across the broader supply chain, from mining to battery-grade refining, to offset any erosion of its position in Indonesia.
- Indonesia: more than 60% of global nickel mine supply (Goldman Sachs)
- Nickel price: up more than 30% between mid-December and January (Goldman Sachs)
- Nickel rose to a nine-month high, then a two-year high, as Indonesian supply tightened (Bloomberg)
- New US-Indonesia commodities deal finalized Thursday (South China Morning Post)
For buyers of stainless steel and battery-grade nickel, the immediate effect is tighter availability and higher input costs from the dominant supplier. For China, which has built extensive smelting and refining capacity in Indonesia, the political dimension of the US deal adds a new variable to a relationship long anchored in commercial investment.