Chapter 5

Figures converted from IDR at historical FX rates — see data/company.json.fx_rates. Ratios, margins, and multiples are unitless and unchanged. This chapter's figures are denominated in US$ per tonne, tonnes, and percentages; no rupiah conversion applies.

The Nickel Market

Harita sells into a nickel market entering its third straight year of global surplus, and that surplus is the fear priced into a stock trading near six times earnings. The oversupply is real, structural, and largely Indonesia's own doing — which is also the reason Indonesia can throttle it. Demand keeps growing, but the genuine tailwind, battery-grade nickel, reaches Harita mostly through its associates rather than its consolidated smelters.

This is the oversupplied-end-market half of the case — the counterweight to the low-cost position set out in Cost Position. It cannot be settled from Harita's own filings alone, so the reading below triangulates the company's disclosures against three Indonesian and Chinese peers that describe the same market.

A market in surplus

The reference price tells the plainest version of the story. The LME monthly average fell to US$15,162 per tonne in 2025 from US$16,814 in 2024 — a decline of roughly 10%, matching the World Bank's estimate of about a 9% annual drop [1]. Prices peaked near US$16,066 in March 2025, then drifted down under renewed supply pressure to US$14,671 in November before a modest year-end tick to US$14,884 [2].

Source: monthly LME nickel averages as charted in the FY2025 annual report from World Bank Pink Sheet data; several months are read from the filing's chart and are approximate [3].

The cause is not weak demand. The International Nickel Study Group projected the global market would stay in surplus through 2025 as processing capacity for intermediates — nickel pig iron (NPI), nickel matte, and mixed hydroxide precipitate (MHP) — kept expanding faster than consumption [4]. Peer MBMA quantifies the imbalance: it puts the 2026 surplus at about 256,000 tonnes, the third consecutive surplus year, down only slightly from roughly 263,000 tonnes in 2025, with Indonesian NPI output alone near 1.76 million tonnes [5].

Demand is growing, but the mix is shifting

Underneath the surplus, consumption is rising, not falling. The INSG had primary nickel demand growing 4.8% in 2024 and projected a further 5.7% in 2025 [6]. The problem is arithmetic, not direction: supply grew faster.

Where that demand comes from is changing in a way that matters for Harita. Stainless steel still dominates, but its share of nickel demand has slipped from about 70% to 65% over five years, while the battery sector has climbed from 3–4% to roughly 14% [7]. Global EV sales reached 17.1 million units in 2024, up 25%, led by a 40% jump in China [8].

Source: FY2024 Annual Report, Board of Directors’ Report — nickel demand by end-use [9].

Two facts complicate the battery tailwind. First, the demand base is heavily Chinese and heavily stainless: China accounts for about 63.5% of global nickel consumption, and its stainless output — roughly 60% of world production — tracks a property sector that has been weak [10], [11]. Second, the battery-chemistry contest cuts against nickel at the margin: lithium iron phosphate (LFP) cells now dominate China on cost, leaving nickel-rich NMC and NCA chemistries concentrated in Europe and the United States for higher-range vehicles [12]. Harita's own management frames this as "market segmentation rather than a structural shift" in nickel demand [13]; the more cautious reading is that if LFP's share keeps rising, the fastest-growing slice of nickel demand grows more slowly than the EV market itself. Trade policy adds friction on top: US Section 301 tariffs of 100% on Chinese EVs and 25% on EV batteries, and EU tariffs up to 45% on Chinese EVs, threaten the battery supply chain that anchors class-1 nickel demand [14].

Indonesia is both the flood and the valve

The single most important fact about this market is that its glut is manufactured in one country. Indonesia holds close to half the world's nickel reserves and supplies roughly 50% of global production; it produced about 2.2 million tonnes in 2024, the most of any nation [15], [16]. The oversupply, in other words, is not a wave of new mines scattered across the globe; it is Indonesia's own downstreaming build-out. That concentration is what gives Jakarta a lever no other producer nation holds.

That lever is the RKAB, the annual mining-quota system that licenses how much ore each miner may extract. For 2026 the government set the national nickel-ore quota at roughly 260–270 million tonnes, against production of about 364–379 million tonnes in 2025 — a cut of nearly 30%, explicitly aimed at rebalancing supply and steadying prices [17].

Source: FY2025 Annual Report, Nickel Industry Outlook — 2026 RKAB set at ~260–270Mt vs ~364–379Mt in 2025 (chart uses range midpoints) [18].

The quota is not a paper threat. Two peers show it already biting. Nickel Industries reports that Indonesia reverted RKAB approvals from a three-year term back to annual renewal in 2025, and that its own Hengjaya mine sat idle from mid-September until 12 December 2025 while it waited for an extension — no mining at all for nearly three months [19]. A Chinese-listed producer in the corpus records the same policy shift — permits shortened from three years to one — and reads it as an early "signal of marginal tightening" in the market [20].

The market has begun to price the possibility. Harita notes that nickel briefly held around US$16,000 per tonne in early January 2026 on RKAB signals, while cautioning that the move was "sentiment-driven" and had not yet changed a market structure still in surplus [21]. That is the honest shape of the catalyst: a real supply lever with a demonstrated ability to remove ore, set against a government that has widened and narrowed these quotas before, and a surplus that MBMA still expects to persist into 2026 regardless.

Where Harita sits in the market

The tailwinds and headwinds do not land evenly across Harita's business, and this is where the market backdrop connects to the earnings-quality question in The Associate Stakes. Harita's products split cleanly by market — and by where they sit in the group.

Source: Harita product portfolio and processing routes [22]; associate structure per The Associate Stakes.

The consequence is that Harita's consolidated income statement is tilted toward the weaker end of the market. Its RKEF smelters turn saprolite into ferronickel for stainless steel [23] — class-2 metal, sold into the China-and-stainless demand pool that is growing slowly and is most exposed to the surplus. The class-1 battery product, MHP, comes from the HPAL plants, and the largest of those (HPL and ONC) are equity-method associates rather than consolidated subsidiaries. So the structural tailwind the bulls cite — battery-grade nickel — accrues disproportionately to the associate line the report examined earlier, not to the operating profit of the listed entity.

One genuine cross-current runs the other way. The Democratic Republic of Congo's cobalt export restrictions pushed cobalt prices up through 2025 [24], and Harita notes that this cobalt by-product credit helped offset higher sulfur costs and preserve HPAL profitability [25]. That credit, too, lands mostly in the HPAL associates — reinforcing rather than diluting the pattern.

Implications for Harita

The market backdrop is genuinely two-sided, and the evidence does not resolve it into a single direction. On the bearish side: nickel is in a structural, Indonesia-made surplus running into a third year, Harita's consolidated output sells into the slowest-growing (stainless) segment, and the fastest-growing segment (battery) faces LFP substitution and trade barriers. On the bullish side: demand is still growing at 5%-plus, the surplus is shrinking, and Indonesia's RKAB cut is a real lever that has already idled peer mines and lifted spot prices on expectation alone.

The read that best fits the record: the low share price is discounting the surplus, which is real, but the surplus is a policy variable more than a demand verdict — and Indonesia has both the incentive (price stability, sector governance) and the demonstrated mechanism (RKAB) to shrink it. For a low-cost producer that stays profitable through the trough, as management repeatedly insists it must [26], a tighter quota regime is a call option on rebalancing that the current price largely ignores. The strongest fact against that read is that the quota lever is discretionary and reversible: MBMA still models a surplus in 2026 with the cut assumed, and Jakarta has loosened quotas before when the domestic downstream complex needed feed.

What would move the balance, in falsifiable terms:

• RKAB enforcement. If 2026 ore output lands near the 260–270Mt quota rather than drifting back toward 2025's ~370Mt, the surplus narrows and the mining spread that drives Harita's margin (Cost Position) holds. Slippage in enforcement is the tell to watch.
• The LME reference price. A durable move above roughly US$16,000 per tonne — not a sentiment spike — would confirm rebalancing; a slide back toward US$14,000 would signal the quota is not binding.
• LFP versus nickel chemistry. Continued LFP share gains in the West, not just China, would erode the one segment where nickel demand grows fastest and would weaken the associate-linked battery thesis.

The demand-and-supply picture does not, on its own, make the stock cheap or dear. It establishes that the market's fear is well-founded but not permanent, and that the specific instrument for relief — Indonesian supply policy — is the variable a prospective owner should track most closely. Translating all of this into a value — reserves, capacity, and consolidated cash earnings against the market price — is the work left for a dedicated valuation frame.