Macquarie Group Ltd. warns that significant cuts to Indonesian nickel mine output could lead to a potential shortage in global supply, causing a dramatic upside risk to nickel prices. With Indonesia being the world’s largest nickel producer, any reduction in its output would have major implications for the market.
Indonesian Government’s Potential Cuts in Nickel Production
The Indonesian government is considering reducing nickel mine quotas from 272 million tons in 2024 to as low as 150 million tons for the coming year, representing a 40% cut. While Macquarie sees these deep cuts as unlikely, they highlight the potential impact of even smaller reductions on global supply and price volatility.
Market Implications and Risks
In Macquarie’s base case, they predict a small oversupply in the nickel market in 2025. However, an unexpected dip in output from Indonesia could trigger higher prices, especially in light of increased demand from the electric vehicle (EV) and battery sectors. The reduction in Indonesia’s output would significantly disrupt the supply chain, making price predictions challenging but potentially bullish.
Production Struggles in Indonesia and Global Effects
Indonesia’s nickel production faces constraints due to government-imposed restrictions aimed at controlling exports. These limitations have created significant supply gaps, forcing traders to source nickel from alternative producers like the Philippines. If production reductions continue, it could further exacerbate global nickel shortages.
Global Nickel Demand Dynamics
Nickel’s market dynamics are influenced by key factors such as China’s economic recovery efforts and the policy measures of the incoming U.S. administration. These could shape the demand for nickel and potentially reverse the recent downturn in prices, especially given nickel’s pivotal role in batteries for electric vehicles.
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