Market Review: In 3Q26, SHFE nickel exhibited a volatile downward trend, driven alternately by Indonesian policy expectations and overseas macroeconomic disturbances. In July, the market continued to trade the logic of tightened quotas, with SHFE nickel rising from around 126,000 yuan/tonne to around 130,000 yuan/tonne. In August, policy expectations fluctuated repeatedly, and SHFE nickel gradually declined to around 127,000 yuan/tonne by month-end. In September, the resumption of Weda Bay combined with strengthening Federal Reserve rate hike expectations led to confirmation of looser ore supply, and SHFE nickel's main contract briefly probed lower before staging a phased rebound at end-September as macroeconomic headwinds were exhausted and El Nino-driven production cut trading fermented.
Ore Sector: The resumption of Weda Bay became a key signal for the market to judge the gradual release of RKAB quotas, with ore supply constraints expected to ease, though approval progress remains largely opaque. The second revision of the HPM formula in September helped improve the economics of hydrometallurgical smelting, but the core disturbance to hydrometallurgical costs remains sulfur prices, and the impact of this revision may be relatively limited.
Smelting: Elevated sulfur prices continue to provide strong support for hydrometallurgical costs, and the short-term cost anchor for nickel prices may still lie in pyrometallurgy. In 3Q26, the profit from converting NPI to high-grade nickel matte remained inverted, and high-grade nickel matte output declined; the actual impact of El Nino-induced NPI production cuts was relatively limited and is not a long-term variable affecting the market. The economics of integrated enterprises directly selling nickel sulfate have emerged, pure nickel production cuts are gradually materializing, and the domestic inventory accumulation trend has slowed, providing support for nickel prices.
Demand: Stainless steel demand remains persistently weak, with end-user刚性 demand sluggish even during the traditional peak season, and steel mills' price pressure on raw materials may translate into NPI price declines. New energy nickel demand maintains strong resilience, but its contribution to nickel demand is limited and unlikely to become the main driver of prices.
Outlook: See the main body of the report.
I. 3Q26 SHFE Nickel Market Review
In 3Q26, SHFE nickel prices exhibited a volatile downward trend, with the trading rhythm driven alternately by Indonesian policy expectations and overseas macroeconomic disturbances. We divide the nickel price movement during this period into three phases:
(1) The first phase was the quota game support phase in July. Starting in July, Indonesian mines could submit RKAB quota revision applications to the government, but Indonesian government officials remained cautious about whether quotas could be increased. The market continued to trade the logic of tightened Indonesian quotas, and SHFE nickel prices rose from around 126,000 yuan/tonne to around 130,000 yuan/tonne, with expectation gaming becoming the short-term dominant factor.
(2) The second phase was the policy expectation fluctuation and gradual center of gravity decline phase in August. The SHFE nickel main contract gradually declined from above 130,000 yuan/tonne at the beginning of the month, fluctuating repeatedly around quota rumors during the month, and closed at around 127,000 yuan/tonne by end-August. In late August, prices generally traded in a narrow range around 128,000 yuan/tonne, with market focus gradually shifting from whether quotas would increase to the final release scale and pace.
(3) The third phase was the confirmation of looser ore supply and the landing of macroeconomic headwinds in September, combined with production disturbances in the smelting segment, with prices bottoming out in stages before rebounding. On September 10, Eramet announced that PT Weda Bay Nickel had been approved to restart mining operations, and expectations of looser ore supply were released intensively. Combined with strengthening Federal Reserve rate hike expectations in September, the SHFE nickel main contract faced phased correction pressure. As phased macroeconomic headwinds were exhausted and the market re-traded El Nino-induced Indonesian NPI production cuts, nickel prices staged a phased rebound at end-September.
II. Ore Sector: Weda Bay Resumption Signals RKAB Quota Loosening, Second HPM Revision Reduces Hydrometallurgical Tax Burden
1. Weda Bay Resumes Operations, Market Expects Possible RKAB Quota Loosening
In 2026, Indonesia cut nickel ore RKAB quotas to 260-270 million wet tonnes, a downward revision of 28.8% to 29.7% from 379 million tonnes in 2025. According to Indonesia's Ministerial Regulation No. 17 of 2025, IUP/IUPK holders may submit one RKAB change application per calendar year, and the 2026 revision application deadline was July 31. Indonesian government officials have repeatedly emphasized that quotas will not be significantly increased and that supplementary quotas are only used to fill ore gaps at smelters.
On September 10, Eramet announced that PT Weda Bay Nickel had been approved to restart mining operations. Since neither the Indonesian government nor industry participants have publicly disclosed RKAB quota approval progress, Weda Bay's resumption反而 became a key signal for the market to judge the gradual release of quotas. Weda Bay is one of the world's largest nickel mines, with a mining rights area of approximately 45,065 hectares, located in North Maluku, with ore mainly supplying smelting projects in the IWIP park. Its 2026 RKAB quota is 12 million wet tonnes, down 30 million wet tonnes from 2025, and it was forced to suspend production in May 2026 due to quota exhaustion. Looking back at history, Weda Bay was approved for a 16 million wet tonne quota in 2024 and received an additional 16 million wet tonne supplementary quota in the same year, with total annual quota of 32 million wet tonnes and sellable production of approximately 32.032 million wet tonnes that year; in 2025, after carrying forward quotas and adding a 10 million wet tonne new energy-specific quota, the annual quota reached 42 million wet tonnes, with sellable production of approximately 41.875 million wet tonnes, maintaining a "full quota, full production" status for two consecutive years.
We believe that considering the mine directly employs approximately 18,000 to 19,000 workers, the Indonesian government needs to balance nickel prices, employment, and industrial development. This resumption essentially releases a positive signal to the market that RKAB supplementary quota approval has made some progress, and ore supply constraints are expected to ease. However, it should be noted that RKAB quota approval progress in Indonesia remains largely opaque, and whether ore supply constraints can be fundamentally alleviated still requires continuous tracking.
2. HPM Formula Receives Second Revision, Hydrometallurgical Smelting Profit Expected to Recover Marginally
On September 15, the Indonesian Ministry of Energy and Mineral Resources (ESDM) Ministerial Decree No. 363.K/MB.01/MEM.B/2026 officially took effect, representing the second revision of the HPM formula established by Ministerial Decree No. 144 in April. Specifically, the HPM for 1.2% grade nickel ore was lowered from 44.97 USD/wet tonne to 24.89 USD/wet tonne, a decline of approximately 45%, the nickel correction coefficient CF was lowered from 26% to 14%, and the associated cobalt coefficient was lowered from 30% to 17%. Previously, in April 2026, the Indonesian government made the first revision to the HPM pricing formula, and the revised HPM price rose significantly, with the direct impact being an increase in the tax burden paid by mines based on HPM prices.
We believe this revision helps improve the economics of hydrometallurgical smelting projects and drives marginal recovery in hydrometallurgical profits. However, it should still be noted that the core disturbance to hydrometallurgical smelting costs currently remains sulfur prices, so the impact of this HPM revision may be relatively limited.
III. Smelting: Hydrometallurgical Costs Still Face Sulfur Price Constraints, Internal Structural Conflicts in Pyrometallurgy Gradually Emerge
1. Middle East Disturbances Marginally Weaken, but Elevated Sulfur Prices Still Provide Strong Support for Hydrometallurgical Costs
Indonesian MHP projects are highly dependent on sulfur for auxiliary materials, with approximately 76.2% of sulfur imports coming from the Middle East in 2025. Each tonne of MHP requires approximately 9 to 10 tonnes of sulfur, and against this backdrop, sulfur prices have become the primary component of MHP costs. After approximately two quarters of fermentation and digestion, the marginal impact of Middle East disturbances is less than in the first half, and Indonesian sulfur imports have received phased replenishment; however, Hormuz Strait traffic volumes remain low, and although Indonesian sulfur prices have slightly declined, absolute prices remain elevated. We estimate that current hydrometallurgical integrated costs remain above approximately 20,000 USD/tonne, significantly higher than current nickel price levels, so in the short term, the cost anchor for nickel prices may still lie in pyrometallurgical smelting.
2. NPI-to-High-Grade-Nickel-Matte Profit Remains Inverted, High-Grade Nickel Matte Output Declines
On the pyrometallurgical side, in 3Q26, the profit from converting NPI to high-grade nickel matte remained inverted with the profit from directly selling NPI, and the incentive to convert NPI to high-grade nickel matte was insufficient. We believe this reflects the strong resilience of NPI prices: in 3Q26, nickel prices fell significantly, but NPI showed some resistance to decline. Further, Indonesian NPI has strong cost support due to factors including rising unit consumption caused by declining nickel ore grades, persistently high auxiliary material prices, and electrolytic aluminum crowding out NPI electricity use, supporting NPI prices' relative resilience. However, affected by persistently weak downstream stainless steel demand, negative feedback transmitted upward, causing NPI prices to decline in late 3Q26. If this trend continues, Indonesian high-grade nickel matte output may increase again in the future.
3. El Nino Impacts Production Water, NPI Production Cut Disturbance Ferments
BMKG monitoring shows that Indonesia is currently in a strong El Nino superimposed with positive IOD drought event, with the heaviest local precipitation stress window from August to September, weakening after the rainy season begins in mid-October, with the event lasting until May 2027. Starting in late September, the impact of El Nino on Indonesian nickel smelting began to emerge. Mysteel news shows that to ensure basic production safety and domestic water use, some nickel-iron smelters within the IMIP park were forced to implement phased production cuts, with the expected reduction reaching 45% of normal capacity, lasting approximately half a month, resulting in a physical volume reduction of approximately 60,000 to 70,000 tonnes of nickel-iron.
We believe that the 60,000 to 70,000 physical tonne NPI reduction translates to approximately 6,000 to 7,000 metal tonnes, while Indonesia's monthly NPI output is approximately 130,000 metal tonnes, so the actual impact may be relatively limited. Additionally, according to BMKG's drought monitoring report "MONITORING KEKERINGAN DI INDONESIA DENGAN METODE SPI" released in June, although both Sulawesi and Maluku face varying degrees of drought impact, Maluku is less affected than Sulawesi, and we expect El Nino's impact on the IWIP park may be relatively limited. Furthermore, combined with Mysteel's statement that the production cut duration is approximately half a month, and BMKG's expectation that El Nino will weaken after the rainy season begins in mid-October, we believe this event may bring short-term shocks but may not be a long-term variable affecting the market.
4. Economics of Integrated Enterprises Directly Selling Nickel Sulfate Are Emerging, Pure Nickel Production Cuts Gradually Materialize
Mysteel data shows that China's refined nickel output in August 2026 was 27,867 tonnes, down 9.48% month-on-month and down 24.06% year-on-year, with pure nickel production cuts materializing. We believe that the price spread between nickel sulfate and electrowon nickel continues to widen. Using high-grade nickel matte as feedstock, we estimate that if integrated enterprises produce nickel sulfate for direct sale, the profit margin is approximately 21.28%; conversely, if they continue processing into electrowon nickel, the profit margin is only approximately 5.53%. Affected by this, the domestic nickel market inventory accumulation trend has slowed, and a short-term destocking inflection point has emerged, providing support for nickel prices.
IV. Demand: Stainless Steel Demand Remains Weak, New Energy Demand Contribution Relatively Limited
1. Stainless Steel: Peak Season Not Peak, Demand Remains Weak
Mysteel data shows that national stainless steel crude steel production in September is expected to be 3.6173 million tonnes, down 3.31% month-on-month. During the traditional consumption peak season, end-user刚性 demand has remained persistently weak, and steel mills' cost inversion pressure continues to increase. We believe that before the real estate cycle fundamentally reverses, industrial procurement during the traditional peak season will retreat more to刚性 demand logic, and steel mills' price pressure on raw materials may continue to translate into NPI price declines.
2. New Energy: New Energy Nickel Demand May Continue to Maintain Strong Resilience
Currently, the market share of ternary cathodes remains relatively low, below 20%. However, in 26H1, the new energy sector overall showed a recovery trend, with positive demand feedback driving marginal recovery in the ternary precursor market, especially as increased penetration of high-nickel routes drove increased nickel use in precursors, providing some support for nickel demand. In 26H2, the new energy production and sales peak season will begin, and battery nickel demand may continue to maintain high growth. However, considering that new energy's contribution to nickel demand is limited, it is expected to be difficult for it to become the main factor affecting prices.
V. Future Outlook
Analyst: Liu Jiaqi, Futures Trading Consulting Business Information: Z0022848, Email: liujiaqish@csc.com.cn
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