After a crazy surge in copper and aluminum prices, it's finally nickel's turn? Indonesia plans to reduce production, and nickel prices welcome three consecutive increases.

Since the "LME Nickel Epic Short Squeeze of 2022", the long-depressed LME nickel prices have seen a rare three-day consecutive increase, further rising from the eight-month low point. The main reason for this is the widespread expectation among commodity traders that the nickel supply from Indonesia, the largest producer of the metal, could decrease significantly. Following the substantial increase in copper and aluminum prices this year, both entering bull markets, nickel, a long-depressed base metal, has finally experienced an explosive surge. This uptrend may not be short-lived, as it is expected to continue amid the rate cuts by the Federal Reserve and the long-term demand for electric vehicles, propelling nickel prices higher from their lowest point in three years. On Friday, the base metal rose by about 1.5%. Just two days earlier, Indonesia proposed a significant reduction in nickel ore production by 2026. The government's work plan for next year envisions a production of around 250 million tons, far below this year's target of 379 million tons. The planned production cut is a response to the continuous decline in nickel prices in recent years. Nickel is mainly used in stainless steel and electric vehicle batteries. Since the beginning of the year, LME nickel prices have fallen by over 3%, making it the only base metal traded on the London Metal Exchange (LME) expected to decline for the whole year. Apart from Indonesia, China has also increased production, surpassing global demand. In contrast, LME copper prices, considered a global economic indicator, have risen by over 30% so far this year, reaching numerous historical highs, with the majority of the increases occurring in the past month. Similarly, copper futures prices in the U.S. are in a strong upward trend, also reaching record highs. The strong increase in copper prices is attributed to the demand surge from the construction of AI data centers and the global shift towards renewable energy, as well as the tariff pressure from the Trump administration. Additionally, the continuous weakening of the U.S. dollar index (DXY) supports copper prices, making it cheaper for commodity investors holding other currencies to purchase metals like copper. Furthermore, the downward trajectory of global interest rates led by the Federal Reserve and the European Central Bank this year has been a core driver of copper prices. Some commodity traders have expressed that Indonesia's plan poses a "significant risk" for investors betting against nickel at a time when prices are close to the country's production cost. It is suggested that some commodity traders have exited arbitrage trades involving copper, aluminum, and other base metals, or have realized significant profits from long positions in copper and aluminum, which may have significantly contributed to the upward trend in nickel prices this week. In addition to proposing a reduction in mining production, the Indonesian Ministry of Energy and Mineral Resources plans to revise the benchmark pricing formula for nickel ore in early 2026, classifying cobalt and other by-products as independent commodities subject to royalties. This move was reported exclusively by Technoz, citing Meidy Katrin Lengkey, the Secretary-General of the Indonesian Nickel Miners Association. Most industrial/base metal prices have seen substantial increases this year. For example, LME copper prices have risen by about one-third and reached a record high of $11,952 per ton last week. Unlike copper and aluminum benefiting from the strong demand brought by the massive construction or expansion of AI data centers by global tech giants such as Google and Microsoft, nickel demand does not match the same level in various industries. Copper, the strongest-performing base metal this year, is widely used in electricity, renewable energy transformation, traditional construction, industrial machinery, transportation, communication, data center construction, among other fields. These are the core sectors of global economic activities, hence the title "Dr. Copper". In the era of artificial intelligence and digital transformation, the construction of super large-scale AI data centers has led to explosive growth in copper demand. The high-speed interconnection of copper cables for power transmission and data processing clusters in the large AI data centers being built by Microsoft, Google, Amazon, and Meta, as well as cooling systems and high-performance electronic devices, are highly dependent on copper. This structural demand from new data centers is gradually becoming a new growth engine for the copper market, while aluminum serves as a secondary beneficiary due to its use in power equipment and the substitution effect under rising copper prices. Clear calculations from the INSG (International Nickel Study Group) show that in 2023, about 65% of global primary nickel usage is in stainless steel, while batteries account for around 16%. This indicates that the prosperity of the nickel industry depends more on stainless steel demand (linked to real estate/manufacturing cycles) and the technology roadmap for EV (electric vehicle) batteries, rather than the AI computing industry chain with the highest global sectoral prosperity. Although the long-term demand for electric vehicles under the energy transition trend remains significant, the current focus in the commodity market trading does not seem to be on the EV transformation aspect. Meanwhile, several institutions predict that global nickel supply may still exceed demand in 2026 (however, changes in Indonesia's supply will be a key variable), which could overall suppress the flexibility and prosperity of nickel prices and the nickel industry chain.