Indonesia's nickel processing capacity expansion shows no signs of slowing, with total NPI and MHP (mixed hydroxide precipitate) capacity reaching approximately 2.0 million tonnes per year in nickel content terms. New capacity additions in 2026 alone total 200,000 tonnes.
The Indonesian supply wave has transformed the global nickel market from a deficit of 150,000 tonnes in 2022 to a surplus of 250,000-300,000 tonnes by 2026. This surplus is overwhelmingly in Class 2 nickel (NPI and ferronickel), which is unsuitable for battery production.
Battery-grade (Class 1) nickel demand is growing at 15% annually, driven by the EV battery sector's preference for high-purity nickel sulfate. However, the conversion bottleneck from Class 2 to Class 1 remains a structural constraint, limiting the impact of Indonesian supply on Class 1 pricing.
The Class 1 premium over LME nickel is currently $200-300/mt, down from $500/mt in 2024, as some Indonesian HPAL plants have begun producing MHP that feeds into the Class 1 supply chain. Trafigura and Glencore have invested in conversion capacity.
LME nickel inventories at 274,938 tonnes are down from the 2025 peak of 312,000 tonnes but remain well above the pre-Indonesian-wave levels of 50,000-70,000 tonnes. The draw is supported by restocking in the stainless steel supply chain.
Class 1 nickel procurement requires a differentiated strategy from general LME hedging. Lock in Class 1 premiums via longer-term offtake agreements with producers that have HPAL conversion capacity. For stainless-grade nickel, the LME pricing is adequate for hedging. Monitor Matthey and Fastmarkets for Class 1 premium quotes.