Despite the broader narrative of nickel oversupply driven by Indonesian NPI expansion, LME nickel inventories are declining. The drawdown, documented by SoraFutures in late May, shows nickel stocks falling alongside other base metals, a signal that exchange-available material is tightening.
Several factors explain this divergence. A significant portion of Indonesian NPI and MHP production is not LME-deliverable; it is consumed directly by stainless mills and precursor producers. Meanwhile, Class 1 nickel production from traditional sources such as Russia, Canada, and Australia faces volume constraints.
Cancelled warrants represent a growing share of LME inventory, with approximately 30 percent of registered stock under cancellation for physical delivery. This concentration of available inventory raises the risk of further backwardation and spot premium increases.
The physical market signals reinforce the two-tier market thesis: while total nickel supply is adequate, LME-deliverable material faces genuine tightness. This is reflected in the premium for Class 1 nickel over NPI-linked pricing, which has widened to approximately $500 per tonne.