Indonesia and China slash nickel production to support the tumbling nickel prices

China and Indonesia are on the verge of reducing their nickel production by at least 100,000 metric tons this year, as reported by traders and analysts. This decision is part of an effort to mitigate weak nickel prices.

The decline in price follows a significant surge in 2022, driven by anticipated supply shortages from Russia due to its military actions in Ukraine. However, with the current price of nickel, which is significantly down from its peak, and with Indonesia's production increase last year making it responsible for more than half of the global supply, the market faces an oversupply issue.

This oversupply, further aggravated by reduced demand due to economic downturns, has led Western mining companies, including BHP, to scale back by mothballing assets, delaying projects, or cutting production. Despite these efforts removing approximately 230,000 tons or about 6% of this year's potential supply, analysts from Macquarie and other sources indicate that further cuts are necessary to rebalance the market and prevent losses. Benchmark Mineral Intelligence has estimated that over 250,000 tons of production cuts are required for market equilibrium.

Most of the excess supply involves nickel pig iron (NPI), a cost-effective alternative to high-grade nickel, with China and Indonesia comprising 70% of its global supply. With production costs and market prices closely aligned, profitability has become a significant concern, especially for many Chinese NPI mills.

Anglo American's CEO Duncan Wanblad has speculated on the potential for differing nickel prices based on application, suggesting a distinction between nickel used in stainless steel production and that for battery applications. This situation puts additional pressure on Western miners, who may face continued losses and potentially further production cuts if market conditions do not improve.

According to the article by Procurement Resource, China and Indonesia plan to reduce nickel production heftily to counteract losses due to falling prices. After a peak in 2022, nickel's price has dropped significantly, leading to an oversupply, especially from Indonesia, which majorly contributed to global production.

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Efforts by Western miners to curtail output have not sufficiently impacted prices, prompting the need for further reductions. High production costs make profitability challenging, especially for nickel pig iron, necessitating a market rebalance to prevent financial losses among producers.