Nickel rises as Indonesia tariff plan and cost pressures reshape outlook

By Romel S. Gurky

Nickel prices rose after Indonesia signaled new export tariffs on key commodities, adding to mounting uncertainty over supply as geopolitical tensions and rising costs weigh on the market, according to analysis by the LME Insight.

Three-month nickel on the LME jumped 2.7% on Wednesday after confirmation that President Prabowo Subianto had signed off on export tariffs covering nickel and coal. The specific rates remain unpublished, but markets have already reacted, with analysts noting that the price move is only a small part of a broader structural shift.

Indonesia’s nickel industry is facing what analysts described as a “structural contradiction,” having built the world’s dominant processing sector on inputs it does not fully control, namely Chinese capital and Middle Eastern sulphur. The ongoing Iran conflict has simultaneously disrupted both.

Jakarta’s response, a windfall-style export tax on its most valuable commodities, introduces an additional cost variable into an already deteriorating cost structure.

The sulphur dependency is the most immediate transmission channel. Indonesia’s high-pressure acid leach (HPAL) plants, which convert low-grade laterite ore into battery-grade mixed hydroxide precipitate, require roughly 24 to 30 tonnes of sulphuric acid per tonne of nickel produced. Around 75% of sulphur feedstock is sourced from the Middle East, where shipping disruptions have pushed prices 30% to 35% above pre-conflict levels of about $500 per tonne.

Even before the conflict, sulphur accounted for roughly half of total operating costs at a typical HPAL plant, a ratio that has now increased materially.

At the same time, Indonesia remains a net importer of crude and fuel, meaning the same geopolitical tensions are also raising its energy import bill.

Analysts said the export tax reflects a rational fiscal response to a widening budget deficit, but its timing places additional pressure on producers whose margins are already shrinking.

Read also: Indonesia eyes higher nickel benchmark, export taxes on processed products to boost revenue

They noted that Indonesia cannot easily resolve this contradiction. Much of its nickel processing capacity has been financed by Chinese capital, and Beijing has a direct interest in maintaining access to affordable battery materials. While final tariff rates may come in lower than market expectations, the underlying cost structure has already shifted regardless of where the rates are set.

For global nickel markets, the key question is how quickly these pressures translate into supply changes.

A market previously forecast to show a surplus of 90,000 tonnes, with Sumitomo estimating a surplus of 256,000 tonnes, could swing into deficit this year, according to revised modelling from Macquarie Group following Indonesia’s tightening of ore production quotas in December.

Nickel pig iron (NPI) output has already fallen by an estimated 10% year-on-year in January and February, with the downward trend continuing.

LME cash nickel was trading at $17,000 to $17,020 per tonne, at the lower bound of the $17,000 to $18,000 range identified by Macquarie. The December 2027 contract was priced at $18,155.

Warehouse stocks stood at 282,456 tonnes, with 18,276 tonnes in cancelled warrants, indicating near-term draws already underway.

The spread between spot prices and the 2027 contract reflects the market’s base case scenario, which assumes a gradual normalization of sulphur supply, moderate tariff levels and a slowly emerging deficit rather than a sudden shortage.

However, analysts said this outlook depends on Indonesia’s ability to manage fiscal pressures without further disrupting the processing capacity it has spent years building.

They added that the export tariff announcement has made that balancing act more difficult, leaving nickel markets highly sensitive to both policy developments and geopolitical risks.

Editing by Alexander Ginting