Nickel

A nickel — a hard, silver-white metal whose primary use is the production of stainless steel — is a commodity experiencing a structural demand boom as electric vehicles and grid-storage batteries ramp production. The shift from palladium autocatalysts to nickel-based batteries is creating an existential shortage of supply and has made nickel one of the most volatile industrial metals.

Stainless steel and the core demand base

Nickel’s primary use has been stainless steel, which accounts for roughly 65% of global demand. Stainless steel — an alloy of iron, chromium, and nickel — is essential to appliances, construction, chemical equipment, and food processing. Nickel’s addition gives stainless steel its corrosion resistance and strength.

Stainless steel demand is tied to economic growth and industrial activity. In recessions, demand falls sharply. In growth periods, demand accelerates. This makes nickel prices cyclical and correlated to broader industrial-commodity prices like copper.

The stainless-steel demand base is mature and slow-growing in developed economies, but still expanding in emerging markets as living standards rise and infrastructure develops. Global stainless-steel demand grows at roughly 3–4% per year on average.

The battery revolution and structural demand shock

Battery production — for electric vehicles and grid storage — now accounts for roughly 15–20% of nickel demand and is growing at 20–30% annually. A lithium-ion battery for an electric vehicle requires 5–8 kilograms of nickel (in the form of nickel-cobalt-aluminum oxide cathode material).

As global EV production accelerates — projections suggest 50+ million EVs annually by 2030, up from ~10 million today — battery demand for nickel is on a collision course with stainless-steel demand. Some forecasts suggest nickel demand from batteries could exceed stainless-steel demand by 2035.

This structural demand shock has no easily foreseeable supply response. Nickel mining is highly concentrated, and bringing new capacity online takes 5–10 years. Indonesia, the world’s largest producer (35% of supply), has in recent years reduced nickel ore exports to encourage downstream refining within Indonesia, creating supply friction.

Supply concentration and geopolitics

Indonesia dominates global nickel supply, producing over 35% of world output. The Philippines, Russia, and Canada round out the top four. This concentration creates vulnerability: any disruption in Indonesian mining (labor disputes, environmental restrictions, export bans) creates global supply shocks.

In 2014–2020, Indonesia banned raw nickel-ore exports to encourage domestic refining, tightening global supply and raising prices. In recent years, Indonesia has shifted policy to allow exports, creating periods of abundance. However, Indonesia has also explored nationalizing nickel resources, which could further disrupt global supply.

Russian nickel supplies are now subject to sanctions and export restrictions following geopolitical events, further tightening global supply.

Latite and high-pressure acid leaching (HPAL)

The supply problem is compounded by the existence of “laterite” ores, which contain nickel but are lower-grade and harder to process than traditional sulfide ores. Indonesia’s laterite deposits are enormous, but refining them requires either costly direct-reduction or high-pressure acid leaching (HPAL) processes.

China has become the global leader in HPAL technology and now produces roughly 30% of global nickel from Indonesian ore, shipped to China for processing. This has created a new supply-chain geography: nickel ore moves from Indonesia to China for refining, then to batteries or stainless-steel producers worldwide.

Recycling and scrap recovery

Unlike aluminum, nickel recycling is limited. Stainless-steel scrap recycling does recover nickel, but the rates are lower than for aluminum — perhaps 20–30% of supply. Battery recycling is in its infancy; most EV batteries produced in the last decade are still in active use, and recycling infrastructure is sparse.

This means supply growth must come almost entirely from mining. The emerging supply deficit — demand growth outpacing mine production — is the central risk to the nickel market.

How nickel trades

The primary venue is the London Metal Exchange, which trades nickel futures with good liquidity. Prices are quoted per tonne and typical spreads are tighter than for many commodities.

In March 2022, the nickel market experienced a dramatic short squeeze and trading halt on the LME, when a major nickel trader took a massive loss on a leveraged short position. This event highlighted the dangers of leverage in a thin, concentrated market and the vulnerabilities created by extreme supply tightness.

Retail access is primarily via commodity-index funds or mining stocks. Direct futures exposure carries leverage risk, as recent history has shown.

Risks and the supply deficit

Nickel’s defining risk is the emerging structural supply deficit. If battery demand grows as forecasted, global nickel supply could fall 500,000+ tonnes short of demand by 2030. This deficit can be bridged only by higher prices (to incentivize mining and substitution), by slower battery growth, or by dramatic improvements in battery chemistry (to reduce nickel content).

The risk of a sharp price spike is high, and the downside risk of demand destruction (if prices rise too far and force EV prices higher) is also real. Nickel is thus a high-volatility commodity caught between these forces.

Additionally, geopolitical disruption in Indonesia or Russia could quickly trigger supply shocks worth years of demand growth.

See also