27 February 2025: The nickel market is in the middle of a massive market glut and the listing of new brands by the LME has encouraged a flood of metal to appear on exchange. Indonesia was expected to underpin prices, but mining quotas look set to increase this year and supply growth is still rapid. Miners in other parts of the world are cutting, but the adjustment is only coming through slowly. There are some bright spots for demand in the stainless steel market, but nickel batteries are losing market share in the electric vehicle market. Overall, the glut in nickel looks set to persist for the next six months at least and we have revised our price forecast for this year downwards.
Nickel prices bounce along a crumbling floor. Many of the base metals have rallied this year, with LME three-month copper prices up 9% YTD (data to 26 February), while aluminium is up 4%. However, nickel has underperformed and prices have barely changed from where they started this year. This significant divergence has been driven by nickel’s weak fundamentals, with CRU estimating that global production will exceed consumption by 44kt in the first quarter of this year. In the short term, the market looks trapped between support around US$15,150/t and an upside capped by opportunistic forward selling by producers above US$18,000/t, although we expect support to slowly crumble as inventory builds.
Exchange stocks balloon. There seems little doubt that the nickel market is badly oversupplied. On-warrant LME stocks have increased by 23% so far this year and reached 182kt by 26 February. This is equivalent to 21 days of global consumption. The original glut in the nickel market was in Class 2 nickel (nickel pig iron and ferronickel), but is now flooding into Class 1, i.e. LME deliverable metal, helped by the LME adding extra brands from China and Indonesia.
Indonesian ramp-up shows little sign of slowing. The biggest problem for nickel bulls is that the ramp-up in Indonesian primary metal continues at a rapid pace. As we show in our chart, growth is down from its peak back in 2021 but was still running at a hot 21% y/y in Q4 2024. Indonesia has moved from 21% of the global market back in Q1 2020 to 49% by Q4 2024.
One small consolation is that China is now contracting modestly, as some output has been relocated in response to the ban on Indonesian raw material exports, which applied from January 2020. Furthermore, Indonesia now has an incentive to limit the downside for nickel prices, so it could cut RKAB mining quotas to help rebalance the market. However, the latest government guidance points to quotas being increased to 299Mt this year, up from 272Mt in 2024.
Global growth is fading though, as high-cost producers are mothballed. On a global level, the picture looks less bearish, with low prices and the loss of raw material exports from Indonesia resulting in widespread closures. World primary production was up just 1.7% y/y in Q4 2024. Australia and New Caledonia have seen the biggest cutbacks, with output in these two down by 28kt since January 2020. There were also cuts in South America, from the Dominican Republic and Guatemala and in Europe.
Surprisingly robust growth in stainless steel market. There are also some more bullish signals from downstream demand. According to CRU figures, global stainless steel output was up 11% /y in December, with strong growth taking place in China and Indonesia. Moreover, China is seeing decent growth in the part of the stainless market which uses nickel (i.e. 200 and 300 series). This part of the market grew by 29% y/y in December. However, the whole stainless steel market slowed into January 2025, with growth of 3% y/y. It remains to be seen though how much the shifting Lunar holiday played in this slowdown. However, high-frequency data from China shows that the property market is successfully being underpinned by the central government. Property sales (gross floor area) were up 28% y/y in the first three weeks of 2025. Electric vehicle sales are also still booming and were up 29% y/y in January 2025, although nickel batteries and nickel-rich lithium batteries are losing market share to lithium-iron-phosphate batteries, which contain no nickel.
Pressure on cost floor support likely to continue. While recent price action suggests that nickel has found a floor, the ongoing glut suggests that bearish pressure will persist for the next six months at least. According to CRU, the 90th percentile for mining costs was US$16,941/t in 2024, which highlights that high-cost producers are already underwater. However, we suspect that there is more pain to come for producers before the market rebalances, particularly as Indonesia has rowed back on its previous promise to rein in the mining sector in the country. Also, our most recent COTR report shows that fresh shorts are dominating fresh longs this month. Given all this, we look for further price falls in the months ahead, with bears slowly gaining the upper hand. We have revised our price forecast downwards and expect the three-month LME price to fall to an average US$14,289/t in Q4 2025 – a 10% fall from today.