Nickel prices on the London Metal Exchange demonstrated significant volatility during the first half of 2026, characterized by two sharp rallies followed by phased corrections, with price levels substantially elevated compared to the second half of 2025, according to analysis from SunSirs, a China-based commodity data group. The market's fundamental dynamics remain shaped by persistent production constraints affecting both hydrometallurgical and pyrometallurgical processing. Global primary nickel supply totaled 1.7748 million metric tons in the first six months of 2026, representing a month-on-month contraction of 9.1% and a year-on-year decline of 3.9%, according to data from Mysteel cited in the SunSirs report.
These supply reductions directly reflect the impact of Indonesia's policy controls and sulfur supply shortages during this period. On the ore supply side, Philippine nickel ore shipments faced restrictions during the first quarter rainy season, supporting elevated prices. However, the subsequent dry season brought increased supply availability and moderating smelter purchasing activity, which pressured prices downward.
Indonesian nickel ore supply dynamics shifted significantly following the tightening of RKAB quotas and implementation of new HPM pricing regulations. These policy changes reshaped the supply and pricing mechanisms, with limited high-grade ore available for circulation, maintaining a tight overall balance. Nickel pig iron production from China and Indonesia combined reached 953,500 nickel tons in the first half of 2026, declining 8.4% year-on-year.
Indonesia's NPI output fell 10.4% to 808,900 nickel tons, while Chinese output increased 4.8% to 144,500 nickel tons. The divergence reflects Indonesia's cost pressures stemming from elevated pyrometallurgical ore prices and rising coal and electricity expenses. Additionally, power competition between electrolytic aluminum and NPI projects within the IWIP industrial park constrained nickel production, as Tsingshan Company prioritized power allocation to aluminum smelting operations in June, forcing NPI production line cutbacks.
Refined nickel output in China reached 205,900 tons during the first half, a year-on-year decrease of 2.1%. Current installed capacity for refined nickel production stands at 52,300 tons, with operating capacity at 49,500 tons and utilization rates at 94.74%. Grade 1 nickel continues to exhibit the most prominent surplus among primary nickel categories, with social inventories accumulating and significantly suppressing upside price momentum.
Indonesian mixed hydroxide precipitate production declined 10.4% year-on-year to 200,100 nickel tons during the first six months. Output pressure stemmed from dual constraints of sulfur availability and nickel ore supply. Geopolitical tensions in the Middle East elevated sulfur prices, substantially eroding HPAL smelter profitability.
Major producers including Lunde, Huafei, and Huayue implemented production cuts ranging from 10% to 50%. Furthermore, tailings dam incidents at projects such as QMB necessitated production suspension for rectification from February through March, compressing overall output further. Nickel sulfate production in China reached 208,000 nickel tons during the first half, surging 36.6% year-on-year.
Cost-side support combined with rebounding demand maintained elevated market conditions for nickel sulfate. Demand-side dynamics present a contrasting picture of resilience. Global primary nickel demand totaled 1.7304 million metric tons during the first half of 2026, increasing 1.5% month-on-month and 3.8% year-on-year.
The global primary nickel surplus narrowed significantly to approximately 44,400 nickel tons, contrasting markedly with the previous year's period. Stainless steel consumption, representing nickel's largest demand sector, maintained steady operations. Chinese crude stainless steel output reached 21.19 million tons in the first half, expanding 7.2% year-on-year.
Domestic mills sustained relatively elevated operating rates throughout the period, with management exercising deliberate control over capacity release timing. Cost-side support restored industry profit levels substantially, with operational quality improving significantly relative to previous years. The new energy vehicle sector provided additional demand support.
Chinese NEV production and sales reached 7.438 million and 7.446 million units respectively in the first half, representing year-on-year increases of 6.7% and 7.3%. NEV exports surged 120% year-on-year to 2.355 million units. Cumulative power battery installed capacity reached 33.56 GWh, growing 12.0% year-on-year, with ternary battery installations at 6.34 GWh representing 18.9% of total capacity and advancing 14.2% year-on-year.
Ternary material output reached 493,000 tons, surging 40.0% year-on-year. Looking forward, SunSirs identifies supply-side contradictions as the core variable governing nickel prices through the remainder of 2026. Philippine nickel ore replenishment combined with moderate RKAB quota increases mid-year are expected to maintain Indonesia's nickel ore supply within a tight balance framework.
The timing and volume of RKAB quota approvals by Indonesian authorities after August represent critical variables requiring ongoing attention. Nickel pig iron production in the second half remains highly dependent on pyrometallurgical ore supply-demand dynamics and price trajectories. If pyrometallurgical ore maintains elevated pricing and high-grade ore supply remains constrained, Indonesian NPI production faces substantial recovery obstacles.
Continued power competition between park aluminum and nickel projects sustains expectations for Indonesian NPI output reductions. Middle East geopolitical circumstances remain the dominant variable affecting hydrometallurgical operations in the second half. Sulfur prices are projected to maintain elevated premiums in the near term, sustaining elevated MHP production costs and potentially slowing the ramp-up of new hydrometallurgical capacity expected during 2026.
On the demand front, stainless steel market sentiment is transitioning from being primarily cost-driven toward focusing on demand sustainability through the second half. Should demand falter, supply pressure may intensify despite most mills maintaining positive profitability and relatively high operating rates with weak production-cutting incentives. Stainless steel output is projected to decline month-on-month in the second half while remaining resilient year-on-year, with annual nickel demand expected to grow 4% to 5%.
New energy applications are forecast to maintain nickel battery usage growth exceeding 10% in the second half. Although lithium iron phosphate substitution trends persist, overseas cell manufacturers and terminal customers maintain stable demand for high-nickel ternary materials. The cancellation of lithium battery export tax rebates scheduled for next year is theoretically expected to generate a front-loading effect on 2026 orders.
Source: sunsirs.com