The nickel market's central question for H2 2026 is whether Indonesia's policy pivot will be enough to absorb the structural surplus built up over the past three years. Nornickel's projection of a 275,000-tonne surplus for 2026 assumes only partial implementation of announced quota restrictions. Full enforcement could push the market into deficit, but most analysts consider this unlikely given Indonesia's economic dependence on nickel revenues.
LME nickel stocks rose sharply through 2025, reflecting the persistent oversupply from Indonesian NPI and HPAL operations. While some of this inventory has been drawn down in early 2026, stock levels remain elevated enough to cap significant price upside unless fundamentals tighten dramatically.
The price level needed to incentivize new Western supply remains an important reference point. Analysts estimate that prices of $20,000-22,000/t are required to justify new laterite processing capacity outside Indonesia, particularly in Australia and New Caledonia. Current levels near $18,500/t are insufficient for new investment, meaning the market will rely on Indonesia for incremental supply for the foreseeable future.
On the demand side, stainless steel production — the main nickel consumer — has been steady across most regions. Growth in the EV battery sector, while still robust at approximately 15% CAGR, has moderated from the 30%+ rates seen in 2021-2023. Adoption of LFP batteries in China, which require no nickel, has reduced nickel intensity in the lower-end EV segment.
The forward-looking question is whether HPAL capacity additions in Indonesia can produce sufficient nickel sulfate for EV batteries at costs that compete with LFP chemistry. If nickel sulfate prices remain elevated, battery makers may accelerate LFP adoption, reducing future nickel demand from the EV sector.
Nickel buyers should evaluate their exposure to both the stainless and EV battery supply chains. The stainless market remains well-supplied, while the battery-grade nickel sulfate market could tighten if Indonesia's quota restrictions are enforced. Consider separate procurement strategies for Class 1 (LME-deliverable) and Class 2/ intermediate nickel products.