Nickel is not one market — it is two, and they are moving in opposite directions. On one side, Class 2 nickel — nickel pig iron (NPI), ferronickel, and mixed hydroxide precipitate (MHP) produced overwhelmingly in Indonesia — is being churned out at record volumes. Indonesia produced approximately 2.6 million tonnes of nickel in mined output in 2025, a 13.9% increase year-on-year. NPI output alone reached 1.86 million tonnes of contained nickel, with an additional 333,000 tonnes of nickel matte and 471,000 tonnes of MHP. These are staggering numbers. Indonesia now accounts for 62-66% of global nickel mine supply, and its market share continues to grow. On this side of the market, there is no scarcity — there is glut. LME nickel inventories, which include both Class 1 and Class 2 material, sit at approximately 82,000 tonnes, well above the crisis lows of 2024 but not high enough to signal the full extent of the Class 2 surplus because much of that material is not LME-deliverable.
On the other side, Class 1 nickel — high-purity briquettes, cathodes, and powder with minimum 99.8% nickel content — is a different story. Class 1 nickel is the material required for conversion into nickel sulfate for EV battery cathodes. It is also the only nickel deliverable against LME contracts (Class 2 NPI and ferronickel do not meet LME specifications). LME inventories of Class 1 material specifically are estimated at 30,000-40,000 tonnes, a tight buffer. The premium for Class 1 over Class 2 has expanded to $800-1,200/t, reflecting not just quality differences but genuine structural scarcity in the high-purity segment. The London Metal Exchange has been working on a Class 2 nickel contract to reflect the market's new reality, but as of mid-2026, the LME contract remains exclusively Class 1 — and that contract is pricing a metal that is fundamentally different from the one Indonesia is producing at record volumes.
Indonesia's ore quota policy is the swing factor for both sides of the market. In 2026, the Indonesian government set the RKAB ore production quota below the 300-310 million wet metric tonnes that smelters estimate they need to operate at full capacity. The quota was initially set at approximately 270-280 million wmt, creating an immediate feedstock crunch for Indonesia's vast NPI and HPAL operations. A mid-2026 policy review discussed expanding the quota to approximately 360 million wmt, but no decision has been announced, and the uncertainty is keeping nickel prices supported. Adding to the structural complexity, the Indonesian government imposed a moratorium on new intermediate smelters — NPI, ferronickel, nickel matte, and MHP operations — under Government Regulation 28/2025, aimed at preventing further oversupply and preserving ore reserves for higher-value processing. Existing smelters can continue operating, but the pipeline of new Class 2 capacity has been abruptly truncated.
The EV battery demand story for nickel remains fundamentally bullish but is hitting short-term headwinds. Nickel-manganese-cobalt (NMC) battery chemistries, which use significant nickel content (typically 60-80% nickel in cathode formulations), are the dominant chemistry for long-range EVs in Europe and North America. Global EV sales grew approximately 22% in H1 2026, and nickel demand from the battery sector is estimated to have risen 18% year-on-year. However, lithium-iron-phosphate (LFP) batteries, which contain zero nickel, continue to gain share in the Chinese market — LFP now accounts for over 65% of Chinese EV battery installations. Benchmark Mineral Intelligence estimates that nickel demand from batteries will reach 600,000 tonnes in 2026, up from 480,000 tonnes in 2025, but this growth rate has decelerated from the 35-40% annual rates seen in 2022-2024.
The stainless steel sector — still nickel's largest end-use at approximately 65-70% of total consumption — is growing at a slower, steadier pace. Global stainless steel production rose 3.5% in H1 2026, driven by Indian and Southeast Asian capacity additions. Chinese stainless output grew 4.2%, with Indonesia's Tsingshan-led stainless complex continuing to expand. The stainless sector primarily consumes Class 2 nickel — NPI and ferronickel — which is abundant and cheap. This is why the nickel market can simultaneously be in surplus (Class 2 for stainless) and deficit (Class 1 for batteries): the two grades are not interchangeable without additional processing that adds cost and complexity.
The analyst community's views on nickel reflect the class divide. Macquarie, in its Q3 2026 base metals outlook, forecasts LME nickel averaging $17,500/t for the full year, noting that 'Indonesian ore policy risk provides a floor, but the Class 2 surplus caps the upside.' Goldman Sachs is more constructive, with a 12-month target of $20,000/t, arguing that the Indonesian moratorium on new smelters combined with rising Class 1 demand from batteries will gradually lift the entire complex. Citi takes the opposite view, forecasting $15,500/t by Q4 2026, betting that Indonesia will eventually ease ore quotas and that the Class 2 surplus will overwhelm the Class 1 tightness. The spread between Goldman's $20,000 and Citi's $15,500 — a $4,500/t range — is wider for nickel than for any other base metal, reflecting the genuine uncertainty about how the class divide resolves.
Nickel procurement strategy in 2026 depends entirely on which nickel you buy. If you purchase Class 2 nickel — NPI or ferronickel for stainless steel production — you are in a buyer's market. Indonesian oversupply keeps NPI prices at a discount to LME, and the moratorium on new smelters will take 2-3 years to materially tighten supply. Negotiate aggressively on premiums and consider fixed-price contracts for 6-12 months. If you purchase Class 1 nickel — high-purity cathodes or briquettes for alloying or battery precursor production — you are in a seller's market. The $800-1,200/t Class 1 premium is unlikely to narrow before 2027. Lock in Class 1 volumes for H2 2026 and H1 2027 now, and expect to pay $19,000-20,000/t all-in for high-purity material. For battery supply chain buyers, the shift toward LFP in China does not eliminate your nickel exposure — NMC remains dominant in European and North American EV production, and nickel sulfate demand from those regions is growing 15-20% annually. Diversify your nickel sulfate sourcing away from single-country dependence on Indonesia: evaluate Australian, Canadian, and Brazilian nickel sulfate projects for offtake agreements that provide supply security beyond the Indonesian policy cycle.