Goldman Sachs Raises 2026 Nickel Price Forecast; Indonesia Supply Contraction is Core Driver

Overview

This report, released by Goldman Sachs Commodities Research, concludes that nickel supply in Indonesia has contracted more than expected, prompting the firm to raise its 2026 nickel price forecast. The report notes that while the total impact of Indonesia's 260 million ton ore quota reduction was previously priced in, the actual execution involves severe uneven allocation among companies. Coupled with disruptions in Middle East sulfur supply leading to production cuts in High-Pressure Acid Leach (HPAL) processes, Indonesia's refined nickel supply in 2026 is projected to see its first negative growth in a decade. This supply-side shock significantly improves the global supply-demand balance, compressing the expected 2026 surplus from 191,000 tons to just 48,000 tons. Based on this, Goldman Sachs has raised its 2026 average nickel price forecast by $1,300 to $18,500/ton and judges that the current cost floor of $17,000-$18,000/ton has been substantially lifted. However, the report also warns that with global visible nickel inventories at high levels, prices will struggle to sustainably hold above $20,000/ton unless further supply losses occur.

Core views

Multiple negative factors on the supply side converge as Indonesia's nickel output reaches a decade-long turning point. The report details three specific sources of this supply contraction: First, structural issues in ore quota allocation. The Weda Bay mine, accounting for 10% of global supply, has a 2026 quota of only 12 million tons, a cliff-like drop from 42 million tons in 2025, far below previous assumptions of average allocation based on total volume. Second, raw material bottlenecks. Disruptions in Middle East sulfur supply have forced HPAL plants, which rely on sulfuric acid to produce battery-grade nickel intermediates, to cut production. Specifically, Huayou's PT Huafei confirmed a 50% production cut starting May 1, while other HPAL operators have cut production by approximately 10%, totaling an impact of about 34,000 tons. Third, operational accidents and financial distress. The QMB project has essentially halted production due to a landslide in February (impacting 89,000 tons), and Gunbuster has closed most of its production lines due to its parent company's bankruptcy. These factors collectively lead to a 1% year-over-year decline in Indonesia's refined nickel supply in 2026, breaking the market consensus of rapid supply expansion in the country since the mid-2010s. The overall cost curve shifts upward, building a solid price floor. The new HPM (Mineral Benchmark Price) pricing formula enacted by the Indonesian government on April 15 raised the minimum reference price for laterite ore (limonite ore), the primary raw material for the HPAL process. This new formula increases ore procurement costs for HPAL operators by approximately $4,500 per ton (a 38% increase). Adding the extra cost of about $2,000/ton from rising sulfur prices, the overall cost base for Indonesia's nickel industry has been lifted by approximately $6,500/ton. The report thereby reinforces the judgment of a price floor at $17,000-$18,000/ton, implying that even if the market eases in the second half of the year, prices are unlikely to fall below this range. The price path exhibits a "high early, stable later" characteristic, with inventories acting as the upside ceiling. Goldman Sachs expects the average nickel price in Q2 2026 to be $19,250/ton, higher than the current futures market level of $19,000/ton. Entering the second half of the year, as supplementary ore quotas typically issued in Q3 materialize and some supply normalizes, market tightness is expected to ease, pushing Q4 prices back to around $18,500/ton. However, upside risks remain and are more probable: if the sulfur shortage persists beyond June, broader HPAL production cuts could erase another 50,000 tons of supply, tightening the market towards balance and potentially keeping the annual average price in the low $19,000/ton range. The constraining factor is that global visible nickel inventories are currently at historical highs (reaching approximately 375,000 tons by May 2026); without further supply losses, high inventories will dampen the momentum for prices to sustainably break through $20,000/ton.

Analysis framework

The report employs a typical dual-track framework of "Supply-Demand Balance Sheet Correction + Cost Curve Analysis" to derive price conclusions. On the supply side, analysts did not stop at surface-level macro quota totals but delved into micro-level differences in corporate allocation and production process constraints. By incorporating Weda Bay's actual quotas, HPAL's sulfur consumption, and the operational status of specific mines into the model one by one, the report achieved a refined quantification of supply losses (e.g., precisely quantifying 34,000 tons of sulfur-driven cuts and 89,000 tons of accident-related cuts). The core of this methodology is that for highly concentrated markets with frequent policy intervention (such as Indonesia's nickel market), top-down total volume estimates are often distorted; only by combining bottom-up project-level tracking can real marginal changes be captured. In terms of pricing logic, the report applies the principle of "cost support anchoring." By breaking down the direct impact of the new HPM regulations on ore costs and the indirect impact of rising sulfur prices on processing fees, it calculates the absolute incremental cash cost for the HPAL process and translates this into a hard support level for the price floor. This reflects the classic paradigm in commodities research that "marginal cost determines the long-term price center." Simultaneously, the report treats inventory levels as a moderating variable for price elasticity: when inventories are high, the transmission efficiency of supply gaps to prices decreases; only when inventories are drawn down below a critical point will the same supply shock trigger a more violent price reaction. This layered analysis avoids the simplistic linear extrapolation that equates supply gaps directly with price increases.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Dynamic Correction of Supply-Demand Balance Sheet

  The report corrects macro total volume assumptions into micro-verified production losses through a bottom-up project-level breakdown of Indonesia's nickel supply (quota allocation, raw material bottlenecks, operational accidents), thereby precisely adjusting the global supply-demand balance sheet. This method is suitable for resource markets with strong policy intervention and high concentration, avoiding total volume data from obscuring structural contradictions.

• Industry/Sector Analysis FrameworkCost curve analysis

  Marginal Cost Pricing and Price Floor Anchoring

  By quantifying the combined impact of the new HPM regulations and rising sulfur prices on HPAL process cash costs (totaling +$6,500/ton), the report determines the cost floor for Indonesia's nickel industry. In commodity cycles, when prices approach the cash costs of marginal producers, downside space is limited; this analysis helps assess the safety margin for prices before supply recovers.

• Industry/Sector Analysis FrameworkUpstream-Midstream-Downstream Transmission

  Transmission Mechanism of Upstream Raw Material Constraints to Midstream Processing

  The report reveals how disruptions in Middle East sulfur supply transmit to battery-grade nickel output at Indonesia's HPAL plants via sulfuric acid, a key intermediate. This demonstrates the amplification effect of 'bottleneck links' in the resource supply chain: even with sufficient nickel ore, a shortage of a single auxiliary material can become the decisive factor constraining terminal output.

Key data

• 2026 Average Nickel Price Forecast$18,500/tonUp $1,300/ton from previous $17,200/ton
• 2026 Q2 Average Nickel Price Forecast$19,250/tonHigher than current futures price of $19,000/ton
• 2026 Global Refined Nickel Surplus48,000 tonsSignificantly narrowed by 143,000 tons from previous 191,000 tons
• 2026 Indonesia Refined Nickel Supply Growth-1% yoyFirst year-over-year negative growth in a decade
• Weda Bay 2026 Nickel Ore Quota12 million tonsDown 71% from 42 million tons in 2025
• HPAL Production Cut Due to Sulfur Shortage34,000 tonsIncludes 50% cut at Huayou's PT Huafei and ~10% cut at other operators
• HPAL Comprehensive Cost Increase~$6,500/tonHPM new regulations +$4,500/ton + Sulfur price increase +$2,000/ton
• Current Nickel Price$19,190/tonRetraced after rebounding from mid-April low of $18,200/ton

Impact & implications

The report argues that this supply contraction marks a transition for the Indonesia nickel market from a phase of "unlimited expansion" to a new cycle dominated by "policy and resource constraints." For the battery materials supply chain, the vulnerability of the HPAL process has been exposed; future stability of battery-grade nickel intermediate supply will depend more on global trade flows of auxiliary materials like sulfur rather than solely on nickel ore reserves. For investors, nickel prices 短期内 (in the short term) benefit from dual tailwinds of cost support and supply gaps, but caution is needed regarding the smoothing effect of high inventories on the pace of gains. In the medium to long term, the unpredictability of Indonesia's mining policy has become a core pricing variable; any quota adjustments or environmental enforcement could trigger violent price fluctuations. The report's implicit judgment is that the market should re-evaluate the valuation logic of Indonesia nickel assets, shifting from a "growth premium" to a "policy risk discount."

Risks

• Sulfur shortage lasts beyond June, causing broader HPAL production cuts and creating upside bias to price forecasts
• High global visible nickel inventories; without new supply losses, prices will struggle to sustainably break $20,000/ton
• Q3 supplementary ore quota issuance exceeds expectations, accelerating market loosening in the second half
• Weak stainless steel demand continues to drag down overall nickel consumption, offsetting part of the supply contraction impact

What to watch

• Sulfur supply recovery and HPAL operating rate changes after June
• Approval timing and scale of Indonesia government's supplementary ore quotas in Q3
• Whether the drawdown speed of global visible nickel inventories is faster than expected
• Discrepancies between actual ore output and quota execution at Weda Bay and other major mines