Indonesia's Morowali Industrial Park has ordered nickel pig iron producers to cut output after an El Niño-driven drought cut cooling-water supplies, a reduction estimated at 100,000 tonnes that helped push LME nickel back above $16,600 a tonne.
At a glance
- Water shortages tied to an El Niño drought forced Indonesia's Morowali Industrial Park to order nickel pig iron output cuts of roughly 100,000 tonnes.
- The park's installed nickel pig iron capacity is about 4.2 million tonnes a year, so the cut could reach 30% to 40% without new water sources.
- LME nickel closed near $16,540 a tonne on September 22, gaining $275 in a day as the supply concern outweighed a stronger US dollar.
Background
Indonesia mines and processes more than half the world's nickel, and Morowali is its single biggest processing hub, converting nickel ore into nickel pig iron (NPI), a cheaper nickel-iron alloy that stainless steel makers blend with scrap to cut costs. NPI smelting needs a steady supply of process and cooling water, which a dry season can constrain.
What happened
Morowali Industrial Park's operator told nickel pig iron producers to cut output over the weekend of September 20. Low rainfall had reduced the water available for cooling and processing at the park's smelters. The affected volume is estimated at around 100,000 tonnes of nickel pig iron. That compares with the park's installed capacity of about 4.2 million tonnes a year, or 350,000 tonnes a month.
Producers could lose 30% to 40% of that output if they cannot secure alternative water supplies soon. Indonesia is the world's largest nickel producer, supplying more than half the global total, and Morowali is its single biggest processing complex. The cut follows a dry spell blamed on El Niño, a periodic warming of the central Pacific Ocean that shifts rainfall patterns across Southeast Asia.
Why it happened
Nickel pig iron smelting uses large volumes of water to cool furnaces and process ore into the alloy. A drought that lowers river flow and groundwater levels forces smelters to cut run rates or risk equipment damage. Indonesia has concentrated a large share of world nickel processing at Morowali, so one regional drought can move global supply. That concentration is why a local weather event moved the London Metal Exchange (LME) nickel price this week.
LME nickel closed at $16,540 a tonne on September 22, up $275 on the day. The gain came even as a stronger US dollar normally weighs on dollar-priced metals. LME-monitored nickel inventories still rose 3.8% over the month to 278,628 tonnes, an elevated stockpile that has so far cushioned the supply scare.
What it means
Indian stainless steel and electric-vehicle battery makers rely on imported nickel pig iron and ferronickel. A prolonged cut at Morowali would raise costs for stainless steel producers that blend nickel pig iron with scrap to hold down input costs. It would also tighten a nickel market that has stayed oversupplied for most of 2026, a shift that would matter well beyond Indonesia if the drought does not ease quickly.
Our read
Outlook: bullish. A verified cut of roughly 100,000 tonnes in Indonesian nickel pig iron output removes supply at the margin and has already lifted LME nickel toward $16,600 a tonne, though elevated exchange inventories could limit further gains if the drought eases quickly.
What to watch
- Whether Morowali secures alternative water sources before the cut deepens toward the 30-40% range.
- LME nickel warehouse inventories, which stood at 278,628 tonnes in September, for signs of a sustained drawdown.
- Rainfall trends across Central Sulawesi as the El Niño pattern continues through the rest of 2026.
For information only, not investment advice.
Nickel price in India
metalscost.com India reference price as of 2026-10-03.
Detailed analysis
Timeline
- 2026-09-20: Morowali Industrial Park orders nickel pig iron producers to cut output as drought cuts water supplies.
- 2026-09-22: LME nickel closes at $16,540 a tonne, up $275 on the day, on the Indonesian supply concern.
Technical view
Price is trading below both its 20-period and 50-period moving averages, a bearish alignment.
Computed from metalscost.com's own stored price history.
