Indonesia's Morowali Industrial Park (IMIP), a significant hub for global nickel production, is confronting a potential reduction in output by as much as 30% to 40%. This severe cut is attributed to an El Niño-driven drought that has drastically limited the water supply necessary for its extensive network of processing plants. Dedy Kurniawan, IMIP's head of media relations, confirmed that these cuts would be implemented unless new water sources are secured.
The impact of the drought is already being felt across the Indonesian nickel industry. Nickel Industries Ltd. has temporarily halted the ramp-up of its Excelsior Nickel Cobalt facility in Sulawesi, expecting it to operate at only 30% of its designed capacity due to water scarcity. While other plants owned by Nickel Industries have not yet been affected, this incident underscores the broader vulnerability of Indonesian nickel producers to water shortages.
Indonesia accounts for over 50% of the world's nickel output, with much of it processed at key industrial parks like Morowali and Weda Bay. The looming production cuts have prompted a rebound in LME nickel prices, which had slipped to around $16,570 per tonne on September 1. By September 3, prices recovered towards $16,900 per tonne following news of the water crisis. Chinese nickel producers are also considering coordinated output cuts of approximately 30% at high-pressure acid leach (HPAL) plants to improve margins. The Indonesian government had already lowered its 2026 mining quota for nickel ore to between 260 million and 270 million tonnes, down from 379 million tonnes in 2025, further tightening the supply outlook.
The overall supply picture for nickel remains mixed. While El Niño poses a significant threat to production, the demand side is also seeing shifts. Stainless steel mills in China and Indonesia maintain firm operating rates. However, the electric vehicle battery precursor segment has experienced slower growth in the third quarter, as some Chinese manufacturers are rebalancing cathode chemistry towards lower nickel content grades. LME on-warrant stocks stood at approximately 268,314 tonnes at the end of August, indicating adequate near-term physical availability despite the emerging supply concerns.
