Nickel stands out as the underperformer among key base metals this year, with a significant supply glut pushing prices down and challenging the profitability of the industry.
The primary driver of this market dynamic is a massive increase in supply, particularly emanating from Indonesia, according to a Commerzbank AG report.
Indonesia has cemented its role as the dominant global mine producer, progressively expanding its lead in recent years.
This surge in raw material output has been mirrored by an increase in processed metal.
Supply and demand
Global primary production saw a strong 5% increase and is “expected to grow another 8% this year, according to the International Nickel Study Group.”
The forecast suggests that the momentum is set to continue, with “another 7% growth projected for the coming year.”
On the demand side, the anticipated consumption, particularly from the crucial battery sector, has failed to keep pace with the supply explosion.
The market has seen “demand — particularly from the battery sector — has grown less than expected.”
A key factor influencing the slower-than-projected demand is a shift in the automotive industry.
The International Nickel Study Group (INSG) notes that this is “partly due to a stronger trend toward plug-in hybrid vehicles, while sales of fully electric vehicles have been slower than anticipated.”
Thu Lan Nguyen, head of FX and commodity research at Commerzbank AG, commented on the situation:
However, the supply glut is increasingly weighing on industry profitability, leading the Indonesian government to plan stronger regulations on production
Indonesia attempts to curb production momentum
In response to the market imbalance and the distress it is causing to producers, the Indonesian government is signalling a shift toward stronger intervention.
There are now plans for “stronger regulations on production” to try and moderate the rapid expansion.
Several preliminary measures have already been enacted in an attempt to curb the aggressive growth trajectory of the nickel industry.
These include “delayed mining permits and recently restricted new capacity for producing intermediate products,” Nguyen said.
However, due to the industry’s high momentum, these regulatory measures will likely take time to have a noticeable effect.
The outlook for nickel prices in the near to medium term remains subdued due to this sustained high level of supply.
The consensus among some analysts points to only a moderate price increase for nickel in the long term, according to Commerzbank.
“Therefore, we see only moderate price increases for nickel in the long term, with our price forecast for end 2026 set at USD 16,000 per ton,” Nguyen said.
Potential for a price rebound
Despite the current overhang, the market acknowledges a significant upside risk contingent on the success of Indonesia’s regulatory efforts, the German bank said.
If the government is able to execute more stringent controls on domestic output, the market could experience a sharp reversal, Nguyen noted.
If the Indonesian government succeeds in more aggressively curbing domestic production through stricter regulations, a sharper turnaround — similar to what has recently occurred with other base metals — could arise, potentially triggering a stronger price surge.
The future price direction of nickel hinges heavily on how quickly and effectively Jakarta can rein in the production boom it has aggressively fostered over the past few years.
Until then, the metal is likely to remain under pressure from the continuing flood of new supply.
At the time of writing, the three-month nickel contract on the London Metal Exchange was at $14,618.38 per ton, down 0.2% from the previous close.
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