The nickel market is experiencing a growing divergence between Class 1 nickel (≥99.8% purity) and Class 2 nickel (NPI, ferronickel) that is reshaping procurement strategies. Class 1 premiums over LME cash have risen from $80-120/mt in January to $220-280/mt currently, driven by battery sector demand that is growing faster than refined nickel production capacity.
Global EV battery nickel demand reached 58,000 tonnes of contained nickel in May, up 28% year-on-year, according to battery supply chain data. Ternary cathode chemistries (NCM 811, NCM 9.5.5, and emerging NCMA variants) continue to dominate the non-LFP battery market, with average nickel content per EV battery pack rising to 36 kg in 2026 from 28 kg in 2024.
The Class 1 supply response remains sluggish. BHP's Nickel West continues to operate at 75% capacity following restructuring amid challenges exporting from Australia. Vale's Long Harbour refinery in Canada faced a three-week maintenance outage in May that removed 4,000 tonnes from the supply chain. New HPAL (high-pressure acid leach) projects in Indonesia that were expected to produce Class 1 intermediate products have been delayed by 6-12 months.
The Class 1 premium divergence has created an unusual arbitrage where nickel matte and MHP (mixed hydroxide precipitate) are being processed through alternative refining pathways to capture the premium. Chinese converter capacity is being utilized at 85% to convert NPI into nickel matte for battery applications, but conversion costs of $1,200-1,500/t of nickel impose a floor on the Class 1 premium.
The Class 1 premium is unlikely to narrow given the supply-demand imbalance. Battery manufacturers should secure long-term offtake agreements directly with producers to lock in a premium of $150-180/mt over LME rather than paying spot premiums above $250/mt. Consider entering into tolling arrangements where feasible.