For much of the past three years, the nickel market has been defined by one overwhelming theme: Indonesian oversupply. Massive expansion in Indonesian nickel production -- spanning nickel pig iron (NPI), matte, and battery-grade intermediates such as mixed hydroxide precipitate (MHP) -- pushed global inventories higher and kept prices under sustained pressure.
But the market entering the second half of 2026 looks materially different.
The International Nickel Study Group (INSG) now expects the global nickel market to swing into a deficit of around 32,000 tonnes in 2026, reversing an earlier projection for a 261,000-tonne surplus. If realised, this would mark the first annual nickel deficit since 2021.
This tightening narrative is being driven not by demand exuberance alone, but increasingly by constraints emerging inside Indonesia itself.
The first pressure point is ore availability. Indonesia has moved toward tighter RKAB mining quota approvals, slowing the pace of ore supply growth that had previously underpinned the country's rapid processing expansion. At the same time, the government has advanced plans for new export duties on coal and nickel products, reinforcing expectations of rising operating costs across the mining and smelting chain.
The second -- and perhaps more disruptive -- development has been sulfur.
Sulfur prices delivered into Indonesia surged sharply during the first half of 2026 amid Middle East supply disruptions and logistical constraints. This matters because sulfuric acid is a critical input for Indonesia's HPAL (High Pressure Acid Leach) sector, which produces battery-grade nickel intermediates such as MHP. The cost shock has materially increased operating costs for HPAL producers and has already contributed to temporary production curtailments at some facilities.
Importantly, this pressure is concentrated in the battery-grade nickel chain rather than the traditional stainless steel segment. Most stainless steel nickel production in Indonesia still relies on NPI and ferronickel routes, which are far less sulfur intensive.
Prices have responded accordingly. LME nickel traded broadly between $16,800/t and above $19,000/t during the first half of 2026, with several institutions revising forecasts upward as supply-side risks intensified.
Yet this is not a straightforward bull market.
LME nickel inventories remain elevated at roughly 277,000 tonnes -- a legacy of the enormous Indonesian supply wave built over recent years. Those inventories continue to act as an important buffer against extreme short-term price spikes and help explain why nickel has not experienced the kind of disorderly rally seen during the 2022 market crisis.
This leaves the market in an unusual position: historically high inventories coexisting with tightening forward expectations.
For now, the key question is whether the current tightening proves temporary -- driven mainly by sulfur disruptions and quota management -- or whether Indonesia's nickel expansion model is finally beginning to encounter structural constraints after years of near-unchecked growth.