Nickel Market Rebalancing: A Strategic Entry Point Amid Supply Uncertainty

The global nickel market in Q4 2025 has entered a critical phase of rebalancing, marked by a confluence of supply-side disruptions, shifting demand dynamics, and speculative positioning that hints at a potential inflection point. While the market remains oversupplied-driven by weak stainless steel and battery demand-underlying structural factors suggest a narrowing of the supply-demand gap could create opportunities for strategic investors.

Supply-Side Pressures and Regulatory Shifts

Nickel prices in 2025 fell sharply, with LME prices dropping from $15,365/mt in early 2025 to $13,865/mt by year-end, while SHFE contracts mirrored this decline according to SP Global. This downward trajectory was exacerbated by seasonal production patterns in the Philippines, where output typically halves in Q4, and regulatory overhauls in Indonesia, the world's largest nickel producer. Indonesia's removal of 190 companies-including 36 nickel producers-and its reduction of mining license durations from three to one year have introduced operational uncertainty. These measures, while initially disruptive, signal a strategic shift toward tighter supply management, potentially curbing the chronic oversupply that has plagued the market.

Demand Diversification and EV Sector Dynamics

On the demand side, traditional sectors like stainless steel have seen declining consumption, with Chinese producers increasingly substituting Russian and Nikkelverk nickel with domestically produced electrodeposited nickel according to SP Global. Meanwhile, the battery sector's reliance on nickel has waned as manufacturers pivot to lithium-iron-phosphate (LFP) chemistries, which require no nickel. This shift reduced the NMC battery market share in 2025, dampening EV-related nickel demand. However, global EV sales grew 15% year-over-year in August 2025, underscoring long-term demand resilience. The U.S. One Big Beautiful Bill Act's phase-out of EV tax credits further front-loaded demand, creating a temporary spike in nickel sulfate usage before a post-incentive slowdown according to Nasdaq.

Speculative Positioning and Market Sentiment

Despite the absence of direct CFTC open interest data for nickel in 2025, third-party analyses highlight bearish speculative positioning. Prices remained range-bound between $15,000 and $15,800/mt since April 2025, with weak demand at year-end pushing LME prices below this range according to SP Global. S&P Global Energy notes that while short-term volatility from Indonesian policy shifts and U.S.-China trade truces could trigger price swings, the market's fundamental imbalance-exemplified by 59% higher LME inventories year-over-year-has constrained meaningful upward movement. This suggests speculative capital remains cautious, favoring short-term hedging over long-term exposure.

Commodity Cycle Implications

The nickel market is currently in a late-cycle bear phase, characterized by oversupply and weak pricing power. Global primary nickel surplus is projected to reach 120,000 mt in 2026, driven by Indonesia's low-cost MHP capacity expansion. However, the interplay of regulatory tightening in Indonesia and potential demand rebounds in the EV sector could catalyze a rebalancing. For instance, Indonesia's forestry license reviews and shortened mining permits may act as a supply-side brake, while hybrid vehicle adoption-using nickel-heavy battery chemistries-could reinvigorate demand according to Nasdaq.

Strategic Entry Points for Investors

Investors should consider nickel as a speculative play in Q1 2026, contingent on three factors:1. Indonesian Policy Clarity: A stable regulatory environment could reduce supply-side volatility.2. EV Demand Reacceleration: A shift back to NMC batteries or hybrid vehicle adoption could boost nickel consumption.3. Inventory Drawdowns: A sustained reduction in LME and SHFE inventories would signal improving fundamentals.

While the market remains vulnerable to near-term bearish pressures, the convergence of tighter Indonesian supply and potential demand-side catalysts positions nickel for a cyclical rebound. Investors with a medium-term horizon may find value in hedging against oversupply risks while capitalizing on structural shifts in the EV and battery sectors.