Now, that policy has been somewhat relaxed, with producers who have demonstrated they have a downstream strategy set to be allowed to export excess ore.
While the impacts of the policy change remain uncertain, analysts all agree the news is negative for the sector.
Citi said while it wasn't a complete reversal of the ban, it brought its bear-case scenario into play, which would see nickel prices average $10,000 per tonne this year, with dips towards $9500/t.
UBS had tipped nickel to average $5.60 per pound this year ($12,342/t), but said the latest developments could tilt the risk towards its downside scenario of $4.50/lb ($9918/t).
The bank suggested Indonesia could reclaim its position as the world's biggest nickel producer.
"The past several weeks has seen other bearish developments including 1) perhaps a more constructive attitude from the Philippine government toward the nickel industry there and 2) a small export deal for low-grade ore from New Caledonia to China," UBS said.
"It is becoming less clear that various government interventions are going to force China's stainless steel producers towards sustainably higher use of high grade nickel products.
"This may place the onus back on shuts of high cost high-pressure acid leach/ferronickel producers to rebalance the trade, or for better demand, which is improving."
Macquarie has left its 2017 forecast of $12,000/t unchanged for now, given the uncertainty, but warned that additional nickel pig iron supply could cap prices at $9000-10,000/t.
Indonesian government-controlled, ASX-listed PT ANTAM said while it had been involved in downstream processing for more than 40 years, it welcomed the change in policy, which would allow it to export low-grade ore.
The company said that it was currently calculating its potential low-grade mined ore that was yet to be used or processed domestically.
Citi believes ANTAM could be sitting on 250,000 tonnes of contained nickel, while Macquarie suggests it could export more than 70,000t per annum of nickel. Source: PNGIndustrial news