As the world’s largest nickel producer Indonesia saw a slowdown in production growth, shattering market expectations for continued high growth in its nickel supply, nickel prices are falling to a five-year low of around $15,000 per tonne in the first quarter of 2025, continuing the downward trend after surpassing $20,000 per tonne in May 2024.
Indonesia’s President officially signed a new nickel product royalty policy on 11 April, which will come into effect on 26 April. According to the new regulations, royalties on nickel products will be dynamically adjusted according to the benchmark price HMA, which ranges from 14%-19% for nickel ore, 5%-7% for nickel pig iron, 3.5%-5.5% for nickel matte, and 4%-6% for nickel iron.
Jason Sappor, senior analyst for metals and mining research at data provider S&P Global Commodity Insights, noted that this tax hike will pose another challenge for the industry. The Indonesian government’s increase in the royalty rate on nickel products is another negative factor for domestic nickel producers who are already facing upward pressure on production costs due to rising nickel ore prices as a result of tight ore supply.
On top of that, another factor affecting the nickel industry was the threat of US tariffs on China, the world’s largest nickel consumer. According to Ewa Manthy, commodities strategist at ING, the tariffs will further impact the struggling nickel market. Nickel prices on the London Metal Exchange (LME) have been range-bound for the most part amid heightened trade tensions.
Manthy noted that US trade tariffs will put pressure on manufacturing activity in China, the world’s largest major nickel consumer, which will put additional pressure on the LME nickel price, which is already weighed down by oversupply, rising exchange inventories and bearish investor sentiment.
Nickel prices tumbled 11.5 per cent in the week following US President Donald Trump’s announcement of tariff increases on 2 April. The move sparked investor fears that the escalating trade war would drive the world into recession.
Although nickel rebounded after Trump suspended larger reciprocal tariffs, there is still a great deal of uncertainty about nickel demand, especially since the effective tariff rate on China has increased to 145 per cent.
According to a report by S&P Global on 14 April, despite growing demand for electric vehicles in China and Europe, battery demand has declined as producers are transitioning to nickel-free battery chemistries, particularly lithium iron phosphate, a component that offers greater cost advantages, a shift that has led to a 19% decrease in demand for nickel-manganese-cobalt batteries between January and February. The battery industry accounts for 11.5 per cent of total nickel demand in 2024.
The general consensus in the industry is that the short-term trend for nickel is likely to depend on the impact of Trump’s tariffs on the global economy. Weak fundamentals are likely to exacerbate the bearish sentiment in the nickel market and ultimately further depress nickel prices.
In the medium term, the downside risk is a further decline in demand for nickel from the electric vehicle industry, which could be partially offset by a contraction in Indonesian supply. For investors, nickel prices may still be some way from floor, while global financial markets uncertainties likely to diminish in the next quarter.
