The nickel market has split into two distinct worlds: Class 2 (NPI, ferronickel) drowning in Indonesian supply, and Class 1 (high-purity cathodes, briquettes, pellets) getting tighter by the quarter. The Class 1 premium over LME cash has widened to $400-600/t in June, the widest since early 2023, as aerospace and defense demand for nickel-based superalloys outpaces high-purity production growth.
Aerospace is the primary demand driver. Nickel-based superalloys — Inconel, Waspaloy, Rene, Hastelloy — contain 50-70% nickel by weight and are used in turbine blades, combustion chambers, and exhaust systems where temperatures exceed 1,000°C. Global aerospace superalloy demand is growing at 6-8% annually, driven by: record commercial aircraft backlogs (14,700 aircraft at Boeing and Airbus combined), higher engine production rates (GE Aerospace delivered 2,300+ LEAP engines in 2025), and defense spending increases.
The defense angle is material. The US defense budget for FY2026 is $886 billion, up 4.5% from 2025. NATO members are accelerating toward the 2% of GDP spending target. Missile systems, naval propulsion, and next-generation combat aircraft all use nickel superalloys in critical components. A single F-35 engine (Pratt & Whitney F135) contains roughly 2.5 tons of nickel in its superalloy components. The F-35 program alone will consume approximately 7,500 tons of nickel in 2026 across roughly 150 aircraft.
Class 1 nickel supply is structurally constrained. Global production is approximately 900,000 tons per year, dominated by a handful of producers: Norilsk Nickel in Russia (210,000 tpy), Vale in Canada (160,000 tpy), Glencore in Norway and Canada (110,000 tpy), and BHP in Australia (80,000 tpy). New Class 1 capacity is rare: it requires sulfide ore bodies (not the laterite ores Indonesia uses for NPI) and hydrometallurgical or carbonyl refining processes that cost $3-5 billion per greenfield facility. No major Class 1 capacity additions are expected before 2028-2029.
The geopolitical dimension adds another constraint. Roughly 17% of global Class 1 nickel comes from Russia (Norilsk), and while it is not directly sanctioned, some Western aerospace OEMs have self-sanctioned, refusing Russian-origin nickel for defense-related contracts. This effectively shrinks the available Class 1 supply pool for NATO-country defense programs.
Class 1 nickel premiums at $400-600/t are going higher. Aerospace backlogs are at record levels, defense spending is accelerating, and no new Class 1 capacity is arriving before 2028. If your supply chain touches aerospace alloys, defense components, or medical devices that require certified high-purity nickel, secure multi-year contracts now. The premium is not a temporary spike — it's the market pricing a structural supply-demand gap. Audit your supplier's nickel sourcing: Russian-origin material may be cheaper but carries compliance risk for defense contracts.