Despite strong demand growth from stainless steel and electric-car battery makers, a large supply of new nickel from top producer Indonesia over the next few years will ensure prices do not return to levels that triggered chaotic trading in March, according to foreign media reports.
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However, prices on the London Metal Exchange are trading at about $21,000 a tonne, enough to spur investment in new capacity, despite a fall of about 80 per cent since hitting a record high in March.
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Nickel prices on the LME started to rise in January as lME-approved warehouse stocks began to slide due to surging demand from battery manufacturers.
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Most nickel in the LME system comes in clumps that are easily crushed into small particles and dissolved in sulfuric acid to make nickel sulfate, which is used in battery chemicals.
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The disorderly surge in nickel prices to a record above $100,000 a tonne in March was driven by the need for China's Tsingshan Holding Group and others to buy back their short positions, as well as a shortage of nickel available for delivery under LME contracts.
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Prices have since fallen, partly because of receding fears of Russian supply disruptions and concerns about slowing demand. Russia accounts for about 10 per cent of global supply this year, estimated at about 3m tonnes.
"Indonesian nickel supply continues to grow as battery-related capacity increases continue to be announced," said Jim Lennon, analyst at Macquarie.
Lennon sees demand growing 5.2% this year, while supply is up 17.5%, and forecasts a nickel surplus of 137,000 tonnes this year and 149,000 tonnes next.
"Indonesia could reach 60 percent of global supply by 2025 and 30 percent by 2020."
Among the announcements is Contemporary Amperage Technology (CATL), which together with two state-owned companies will invest nearly $6 billion in nickel mining and processing, producing battery materials and manufacturing batteries.
Most of the nickel produced in Indonesia is nickel pig iron (NPI), which turns matte and can be converted to metal or sulfate.
The new high pressure acid leaching (HPAL) plant produces nickel that can be used in battery chemicals, which is also a feature of Indonesian production.
"We have intermediate routes -- from NPI to matte, from HPAL to battery chemicals," said Julian Kettle, an analyst at Wood Mackenzie. He added that production of 300,000 tonnes of intermediates had already started and another 550,000 tonnes were under consideration.
Wood Mackenzie estimates that the world will need an additional 1.65 million tonnes of nickel between 2026 and 2038, most of which is expected to come from Indonesia.
However, Kettle warned that ESG's concerns about Indonesian nickel -- deforestation and coal-fired power generation -- could make it difficult for supply to meet demand.
