- Higher production costs, ore supply constraints weigh on profits
- Actual implementation of proposed cuts remains uncertain
Nickel supply concerns intensified on October 21 as major Chinese nickel producers reportedly discussed coordinated production cuts at their Indonesian facilities. The proposed measures could extend beyond battery-related nickel intermediates to include nickel pig iron (NPI), a key raw material for stainless steel production.
Major producers, including Tsingshan Group, GEM, Lygend Resources & Technology and Huayou Cobalt, were discussing plans to reduce operating rates at their Indonesian production facilities. The companies were expected to discuss specific reduction targets and implementation plans at a senior management meeting during the week.
Initial discussions focused on mixed hydroxide precipitate (MHP) produced through the high-pressure acid leaching (HPAL) process. MHP is an intermediate product derived from low-grade limonite ore and is primarily used to produce nickel sulfate for electric vehicle batteries.
The companies had reportedly discussed coordinated production cuts in August but failed to reach a final agreement. At that time, a reduction of around 30% per company was proposed. The latest discussions were also reported to consider determining the scale of cuts based on actual facility utilisation rates.
Proposed cuts may extend to NPI production
Separate reports indicated that producers had discussed reducing MHP and high-grade nickel matte production by 50% each, alongside a 20% reduction in NPI output. The proposed cuts were reportedly being considered for implementation from October 23 through the end of 2026.
However, the companies had not officially confirmed the proposed reduction ratios or implementation schedules, and it remained uncertain whether the negotiations would result in a formal agreement.
The potential inclusion of NPI is particularly significant for the stainless steel industry. While previous production adjustment discussions have focused largely on nickel intermediates used in battery supply chains, NPI cuts could directly affect the availability of stainless steel raw materials.
If implemented, lower Indonesian NPI output could tighten supply to Chinese stainless steel producers, potentially increasing raw material costs and influencing stainless steel production economics. The actual market impact will depend on the scale of reductions and their implementation.
Chinese nickel and stainless steel futures rise
Chinese nickel and stainless steel futures strengthened following reports of potential production cuts, as market participants assessed the possibility of tighter supply.
On October 21, the most-traded nickel futures contract on the Shanghai Futures Exchange (SHFE) closed at CNY 121,090/t ($18,138/t), up 3.05% from the previous trading session. Stainless steel futures also gained 2.02% to CNY 13,635/t ($2,042/t).
The rally extended into China’s physical stainless steel market, where hot-rolled and cold-rolled prices increased in major distribution centres, including Wuxi and Foshan. Trading activity reportedly improved in some regions as expectations of supply reductions supported sentiment.
However, the price gains were driven partly by production-cut expectations, and their sustainability will depend on whether the proposed measures are confirmed and implemented.
Rising costs weigh on nickel producers
The reported production-cut discussions come amid deteriorating profitability across parts of Indonesia’s nickel industry. LME nickel prices have fallen around 20% from their peak in May, with weakness becoming more pronounced since August. Lower cobalt prices have also added pressure on MHP producers.
Meanwhile, Indonesia’s tighter nickel ore quota management and changes to its Harga Patokan Mineral (HPM) benchmark pricing system have altered raw material procurement costs. Although measures introduced in September lowered the pricing coefficient for low-grade nickel ore, cost pressures on producers have persisted.
Higher sulphur prices have added to HPAL operating costs. The process relies on sulphuric acid to extract nickel and cobalt, making production economics sensitive to changes in sulphur-related input costs. Water shortages linked to drought in some Indonesian nickel-producing regions have also disrupted plant operations.
Together, weaker nickel prices, higher operating costs and raw material supply constraints have increased pressure on producer margins, providing the backdrop for discussions around potential output adjustments.
Outlook
The proposed production cuts could reshape near-term nickel supply expectations, particularly if reductions extend to NPI alongside battery-related intermediates. For the stainless steel sector, any sustained decline in Indonesian NPI output could tighten raw material availability and provide support to prices.
Nevertheless, the proposals remain unconfirmed. Market participants will closely monitor official announcements, actual facility operating rates and developments in Indonesian nickel ore supply to assess whether the reported cuts translate into a sustained change in market fundamentals.
Note: This article is published as part of a content exchange agreement between SteelDaily and BigMint.
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