London, January 26th (Argus) - Indonesia plans to reduce its 2026 nickel mining work plan and budget (RKAB) to approximately 250-260 million tons. This is a significant policy intervention. However, this move may only tighten the supply of upstream ore but will not help solve the global oversupply of refined products such as nickel pig iron (NPI), nickel sponge, and mixed hydroxide nickel cobalt (MHP).
Currently, the oversupply in the nickel market is in the downstream products - especially nickel pig iron (NPI), nickel sponge, and mixed hydroxide nickel cobalt (MHP) - rather than nickel ore. An Indonesian source told Argus that the domestic ore prices in Indonesia remain at a high level, with the landed price of ore with a 1.6% nickel content higher than $50 per ton, indicating that the supply of ore remains tight. If there is an oversupply of ore, the price will significantly decrease. Therefore, merely reducing the ore quota may be difficult to rebalance the markets for NPI, nickel sponge, and MHP, unless the refining output is also restricted, as production can be redirected to import ore from the Philippines and New Caledonia, as has been the case in recent years.
Market participants stated that the approved quotas last year were much higher than the actual ore consumption of approximately 300 million tons. This means that even if the refining demand is expected to increase further in 2026, the actual reduction in supply may be less than the headline figures. The proposed RKAB for 2026 has decreased by approximately one-third compared to the 370 million tons approved in 2025, and its purpose seems to be "managing" nickel prices and regaining control of the supply chain. This is reflected in the recent surge in nickel prices on the London Metal Exchange (LME) to over $18,000 per ton. However, the approved quotas are still lower than Argus' estimate of approximately 330 million tons of Indonesian ore demand in 2026, which is more likely to lead to raw material shortages for refineries rather than a meaningful correction of the oversupply of refined nickel.
This disconnection reflects a structural reality that a market participant has increasingly recognized: Indonesia's nickel surplus lies in downstream products, not in ore. And for some producers, the risk of tight ore supply has become a reality. The second Indonesian source told Argus that major producer Vale Indonesia has been approved for only about 30% of its 2026 RKAB compared to its application volume, and its current quota is considered insufficient to supply the multiple high-pressure acid leaching (HPAL) projects planned to come online this year. Vale is developing three HPAL factories, including Pomalaa and Bahodopi, and these projects will require over 30 million tons of brown coal per year upon full production. Without additional quota approval, the company's commitment will not be fulfilled.
Analysts also cautioned that the RKAB quotas in Indonesia are issued in wet tons, which contain significant moisture and have varying nickel grades, adding another layer of uncertainty to the final amount of refined nickel supply that may be affected.
