The battery-grade nickel market is at a critical inflection point. While the long-term thesis — that EV adoption will drive significant nickel demand growth — remains intact, the near-term reality is more nuanced. SMM estimates battery nickel consumption will reach only 470,000 tonnes in 2026, a minimal increase of just 10,000 tonnes from 2025 levels, as LFP (lithium iron phosphate) and other low-nickel chemistries continue to dominate the Chinese EV market.
LFP batteries now capture approximately two-thirds of China's EV market, fundamentally capping nickel demand growth from the world's largest EV market. While high-nickel NMC chemistries remain dominant in Europe and North America for premium long-range EVs, the overall mix shift toward LFP has reduced the nickel intensity of the global EV fleet.
On the supply side, Indonesia's mixed hydroxide precipitate (MHP) capacity is forecast to nearly double to 862,000 tonnes per year in 2026 as multiple HPAL projects are commissioned. While not all capacity will translate into production at nameplate rates, even 70-80% utilization would add significant supply to a market where demand growth is measured in tens of thousands of tonnes.
This creates a structural tension: rising HPAL capacity points toward Class 2 oversupply, while Indonesian ore constraints and policy tightening support higher LME prices. The resolution of this tension will determine nickel's medium-term price trajectory. Some analysts argue that MHP oversupply will depress nickel prices toward $15,000/t; others counter that ore constraints will keep the market balanced.
Positively, European battery makers have re-entered the market aggressively to secure supply amid geopolitical concerns. Long-term offtake commitments for battery-grade nickel are increasing, and some OEMs are willing to pay premiums for supply chain transparency and ESG compliance. This demand for certified green nickel — produced with lower carbon intensity — is creating a pricing premium that may partially insulate the battery-grade segment from the broader oversupply dynamic.
The nickel market's bifurcation between Class 1 (LME-deliverable) and Class 2 (NPI/MHP) creates distinct procurement strategies for different consumers. Battery-grade buyers should secure long-term MHP offtake agreements now — even with potential oversupply, securing supply chain transparency and ESG compliance may command premiums. Stainless steel buyers should expect NPI pricing to track LME more closely. For all buyers, the key variable is Indonesia's ore quota policy — any further tightening would push prices toward $20,000/t, while a relaxation could trigger a correction toward $15,000/t.