Nickel is the base metals complex's problem child in 2026. LME nickel at $17,640/mt is down 2.8% month-to-date, underperforming zinc (+3.2%), copper (+0.5%), and even lead (-0.3%). The chart shows a market that has been unable to sustain a rally above $18,000/mt since February, with each attempted breakout met by producer hedging and Indonesian supply growth.
LME warehouse inventories tell the surplus story. Stocks at 276,216 tons are the highest in four and a half years, having risen every month since March 2024. The metal flowing into LME sheds is predominantly Indonesian-origin nickel in briquette and full-plate form, produced by Chinese-owned NPI-to-matte converters in Sulawesi and Halmahera. Much of this metal is Class 2 equivalent that has been upgraded to LME-deliverable form, but LME warehouses don't distinguish by grade.
Indonesia's nickel production juggernaut shows no sign of slowing. Q2 2026 NPI output is tracking at roughly 520,000 tons of contained nickel, according to INSG estimates, putting the country on pace for 2.05 million tons of contained nickel in 2026 — up from 1.75 million tons in 2025. Indonesia now accounts for 55% of global nickel supply, up from 30% in 2020. The growth is driven by Chinese investment in rotary kiln electric furnace (RKEF) capacity in the Indonesia Morowali Industrial Park (IMIP) and Indonesia Weda Bay Industrial Park (IWIP).
The Class 1-Class 2 divergence is the most important dynamic in the nickel market right now. Class 1 nickel (minimum 99.8% purity, used in aerospace alloys, superalloys, and electroplating) trades at a $400-600/t premium over LME. Class 2 nickel (NPI, ferronickel, used in stainless steel) is in heavy surplus. The LME price at $17,640/t reflects the Class 2 surplus. Buyers of Class 1 nickel — aerospace OEMs, defense contractors, medical device manufacturers — are paying significantly more.
Stainless steel, which consumes 70% of global nickel, is growing at roughly 2.5% annually, but the growth is concentrated in China and India where NPI-based stainless production dominates. European and US stainless mills, which use more Class 1 nickel in their melt mix, are seeing flat output. The net effect: growing nickel demand but growing supply even faster, keeping LME prices under pressure.
If you buy stainless steel, nickel at $17,640/mt and the supply surplus mean nickel surcharges and alloy surcharges should stay low through Q3. If you buy high-purity nickel for aerospace, defense, or medical applications, the story is different: Class 1 nickel premiums at $400-600/t reflect real tightness. Don't benchmark Class 1 procurement against the LME price alone — you need to factor the premium. Consider multi-year contracts for Class 1 to lock in availability; the premium is the price of supply security in a structurally tight high-purity market.