Indonesian nickel smelters cut output after ore mining quotas are reduced

Indonesia’s nickel industry is beginning to feel the impact of tighter raw material supplies after the government moved to curb nickel ore production, forcing many smelters to reduce operating rates and scale back output.

Nickel prices reflected some of the changing market dynamics, with spot nickel falling 2.3% to $18,300 per ton as of 15:26 GMT.

Indonesia’s Energy Ministry reduced the country’s 2026 nickel ore production quota to between 260 million and 270 million metric tons, down from 320 million tons produced last year. The new target is also well below industry demand estimates of 340 million to 350 million tons for the current year.

The production cuts were introduced after years of oversupply that weighed heavily on global nickel prices.

Smelter utilization declines

According to Indonesia’s nickel industry association, utilization rates at rotary kiln electric furnace (RKEF) nickel smelters have fallen to 76%, compared with 84% a year ago.

Arif B. Kusuma, chairman of the industry group, said during Indonesia’s Critical Minerals Conference on Friday that several production lines in South Sulawesi and Central Sulawesi have reduced output to less than 50% of capacity.

He explained that operators are maintaining minimum production levels to avoid shutting furnaces down completely, since restarting idle furnaces is expensive and can take several months.

Government seeks to prevent another supply glut

Septian Hario Seto, a member of Indonesia’s National Economic Council, said production controls had become necessary after years of oversupply created significant pressure on nickel prices.

“If we do not control production, I believe we will see the largest surplus in nickel market history in 2026,” Seto said.

Nickel prices on the London Metal Exchange climbed to $20,000 per ton on May 6, their highest level since May 2024, as investors grew concerned about potential supply shortages from Indonesia, the world’s largest nickel producer.

Seto stated that a price range between $18,000 and $20,000 per ton represents the “ideal level” for Indonesia.

“We would like to see prices remain within this range, but we certainly do not expect nickel prices to rise significantly above $20,000 per ton because that would create problems for end users,” he said.

Major producer exhausts quota

Meanwhile, PT Weda Bay Nickel, the Indonesian operation partly owned by the French mining company Eramet, has suspended nickel ore production after exhausting its mining quota at the end of May.

The company plans to apply for an additional production allocation as it seeks to resume operations.

The developments highlight Indonesia’s increasingly active role in managing global nickel supply, as policymakers attempt to balance producer profitability against the risk of another prolonged period of oversupply in the market.