Indonesia will raise benchmark prices for nickel ore this week, dealing a serious blow to the local processing sector already struggling with supply shortages and rising raw material costs.
The new pricing formula, which came into effect on Wednesday (April 15), will increase the price level for all grades of nickel ore. Bloomberg report.
In a significant amendment, the cost of by-product metals contained in the ore, including cobalt, will now be added to the benchmark calculations.
Facing increasing budgetary stress from increased oil prices due to the Middle East conflict, the resource-rich nation is actively looking for ways to generate additional state revenue.
Indonesia’s benchmark prices, which are adjusted twice a month and loosely linked to London Metal Exchange (LME) pricing, establish the legal minimum amount a smelter must pay miners for raw ore.
Nickel futures on the LME rose 2.6 percent to a one-month high this week following reports of an imminent benchmark hike.
processor squeeze
The policy change is a major blow to the top nickel producer’s huge downstream processing industry, which currently accounts for more than half of global output.
These times are especially difficult for high-pressure acid leach (HPAL) plants. These highly complex, capital-intensive facilities typically purchase low-grade ore and process it into battery-grade materials for electric vehicle manufacturers.
HPAL operators are already suffering from a sharp rise in the price of sulfur, a key chemical reagent needed for the acid leaching process, as Persian Gulf supplies are off the market due to Iran’s ongoing war.
Now, they are facing double pressure as the cost of their primary feedstock increases. While strict mining quotas have already pushed the cost of high-grade saprolite ore well above current government benchmarks, the new formula guarantees that lower-grade material will also see an inevitable increase in price.
The profitability of downstream nickel processors is being directly impacted, creating a scenario where some operators may be forced to cut production or rely on expensive imports from neighboring countries such as the Philippines.
Over the past several years, large-scale downstream capacity was built in Indonesia, creating a structural conflict with the government’s new tight limits on domestic nickel ore supply.
The current shortage has already pushed domestic ore premiums to peak levels. In the high-grade saprolite market, local premiums have recently soared to 60 percent of the minimum price set by the government, according to a Recent S&P Global Brief.
Beginning in 2026, the region is rapidly moving away from an era of unregulated oversupply toward a new era of state-managed discipline.
Indonesia has certainly abandoned its “growth at all costs” model in favor of active supply and price controls.
At the end of last year, Jakarta Mining quota reduced Validity from three years to one year. It later reduced its overall production target for 2026 to between 260 million and 270 million metric tons, significantly lower than last year’s 364 million metric tons.
‘Green Premium’ segmentation
As Indonesia tightens its grip on physical supply, the global market is also being fractured geopolitically.
Western producers are demanding a “green premium” for low-carbon nickel sourced from projects outside Indonesia. While nickel is a strategic raw material critical to the green energy transition, the low cost of Indonesian supplies has historically been linked to high carbon emissions due to the sector’s heavy reliance on captive coal-fired power.
Benchmark Mineral Intelligence (BMI) estimates that less than a third of global nickel production currently comes from operators committed to environmental, social and governance transparency.
Given that Indonesia produces more than half of the world’s battery, the lack of transparency in many operations, especially established during the recent Chinese-backed nickel rush, makes it extremely difficult for automakers to verify the ethical footprint of their battery materials.
In 2024, this division resulted in intense lobbying by Western manufacturers LME urged Separating its nickel contract into “clean” and “dirty” variants. The exchange opposed the move.
“Separating ‘green’ and ‘dirty’ nickel would go against recent calls to rebuild liquidity on the LME following the nickel crisis,” said Dr. Sebastian Kreft, co-founder of Metalshub. told the Financial Times in an interview.
Instead, the exchange is leaning on voluntary transparency. Metalshub now allows nickel sellers to upload product carbon footprint data along with their offers.
Global supply remains high
Despite regulatory tightening in Indonesia, the broader global market remains oversupplied.
During the first quarter of 2026, nickel prices experienced extreme volatility, falling to around US$14,255 per metric ton in mid-December and rising to US$18,785 by the end of January. The price recently stabilized in a wide range between USD 17,000 to USD 18,800.
While Shanghai Futures Exchange warehouse inventories have declined this year, LME inventories have continued to rise, rising from 255,282 metric tons at the end of December to 282,792 metric tons at the end of March.
Ultimately, the market needs a massive increase in demand to absorb the existing capacity.
Market momentum now depends on whether Indonesia’s regulatory pressure forces enough local processors to close.
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Securities Disclosure: I, Gian Liguid, do not have any direct investment interest in any of the companies mentioned in this article.
