Nickel at a crossroad: From stainless steel dominance to battery-driven uncertainty

Nickel, a key industrial raw material in the commodity sector, possesses excellent electrical conductivity and corrosion resistance. It is widely used in stainless steel, ternary lithium batteries, electroplating, and catalysts, among other fields. In recent years, China's push for the transition from traditional to new energy sources and the development of high-end manufacturing has driven continuous growth in demand for high-energy-density ternary lithium batteries. The development of emerging industries, including new energy vehicles, e-VTOL low-altitude aircraft, and smart robots, is inextricably linked to the demand for nickel.

As a critical energy storage material for emerging manufacturing, ternary lithium batteries constitute an extremely high proportion of product production costs. Furthermore, nickel is the most prominent metallic raw material within ternary power batteries. Taking the common high-nickel battery NCM811 as an example, the proportion of nickel can be as high as 80%. High-nickel batteries are gradually becoming the mainstream trend in ternary lithium battery development. 

Supply:

Currently, the overall supply-demand balance is shifting from tight to surplus, leading to a sustained downward pressure on nickel prices. The nickel industry chain is currently transitioning from the prosperity phase to the recession phase of the commodity industry cycle (Juglar cycle), and competition among the upstream and downstream is becoming increasingly fierce.

From a supply perspective, nickel primary ores are mainly lateritic nickel ore and sulfide nickel ore, which differ significantly in terms of reserves, mining costs, grade, and smelting processes. Early NPI smelting preferred higher-grade sulfide nickel ores. However, declining reserves and increasing mining difficulties pushed up nickel usage costs, accelerating both smelting technology innovation and the development of lateritic nickel ore resources.

Initially, Indonesia leveraged the world's richest lateritic nickel ore resources and highly attractive industrial policies to successfully attract massive foreign investment (primarily from China) to build nickel processing capacity, catapulting itself to become the world's largest nickel supplier. According to USGS data, Indonesia's nickel product supply in 2024 amounted to approximately 2.2 million tonnes in Ni. content, accounting for about 60% of the global supply.

Innovations in smelting technology brought new changes to the supply-demand landscape. The Rotary Kiln-Electric Furnace (RKEF) technology, introduced early on by Chinese smelters, enabled low-cost, large-scale production of Nickel Pig Iron (NPI). Subsequently, China's Tsingshan Group achieved a technological breakthrough in 2020 by successfully converting NPI into high-grade nickel matte. This breakthrough created a pathway for low-grade lateritic nickel ore to directly feed the new energy battery material supply chain. It granted suppliers the flexibility to allocate resources based on profitability between the two major end markets -- stainless steel and batteries -- and fundamentally resolved the structural shortage of raw materials for the battery market.

Nickel ore processing and smelting methods vary significantly based on ore composition and grade. Pyrometallurgy is suitable for higher-grade sulfide ores and saprolitic ores with over 1.5% nickel content. While offering high recovery rates, this method is energy-intensive and has higher pollution levels. In recent years, Chinese companies have concentrated investments in hydrometallurgical processes, primarily for treating lower-grade limonite ores (Ni 0.8%-1.5%). The High-Pressure Acid Leach (HPAL) method, for instance, is adept at processing limonite layers with high iron content. The Mixed Hydroxide Precipitate (MHP) produced via HPAL is mainly used for refining into nickel sulfate and typically commands a premium over nickel pig iron (NPI).

Driven by high growth expectations for nickel demand in ternary lithium batteries, leading Chinese firms like Huayou Cobalt, GEM, and Lygend Resources have successively invested in and constructed numerous HPAL projects for lateritic nickel ore. By the end of 2024, these three listed companies were projected to have commissioned HPAL projects in Indonesia with a combined capacity of 390,000 tonnes (in Ni. Content). An additional planned or under-construction capacity of approximately 600,000 tonnes (in Ni. Content) is expected to come online gradually over the next three years.

From a cost perspective, HPAL requires substantial upfront capital investment and is subject to various cost factors, including sulfuric acid prices, fuel, and neutralizing agents. Given that many HPAL projects are funded heavily through loans and leveraged financing, significant production halts are considered unlikely once operational. According to WBMS data, global refined nickel production reached 1.9216 million tonnes from January to June 2025, against consumption of 1.7417 million tonnes, resulting in a surplus of about 180,000 tonnes. Although the Indonesian Nickel Miners Association recently indicated that some local smelting lines have reduced output or halted due to cost and environmental pressures, the global nickel supply landscape remains relatively loose, a situation unlikely to change significantly in the short term.

Types of Lateritic Nickel Ore Resources

Source: Mysteel

Against the backdrop of growing ESG (Environmental, Social, and Governance) awareness and the push for a circular economy, the utilization of recycled nickel resources is gradually becoming an indispensable part of the nickel industry's supply chain. Compared to primary nickel (mined from ores), producing recycled nickel reduces energy consumption by approximately 60%-90% and cuts carbon emissions by about 70%-90%, offering significant environmental and economic benefits. As the world's largest consumer of both stainless steel and new energy vehicles, China is also the largest market for recycled nickel recovery and utilization. Preliminary estimates indicate that China annually recycles approximately 500,000 tonnes in Ni. content, accounting for over 65% of the global total.

Demand:

The application of stainless steel and ternary power batteries can reflect the demand for nickel. Stainless steel manufacturing consumes approximately 70% of total nickel demand, serving major sectors like construction, manufacturing, and consumer goods. According to Mysteel, for the first half of 2025, China's production of stainless steel (200-series and 300-series) reached 5.62 million tonnes and 10.52 million tonnes respectively, up about 4.3% and 10.5% year-on-year. During this period, social inventories of 300-series stainless steel decreased by 3.3% year-on-year to 650,000 tonnes, while 200-series inventories fell by 3.9% to 200,000 tonnes. The inventory data suggests a clear consumption growth in the first half of 2025, primarily supported by the national "trade-in" policy stimulus and export growth. However, the stainless steel industry overall faced losses during H1 2025. Taking the common 304 stainless steel as an example, the average profit margin was -1.19% this year, indicating intensified price competition within the industry. Furthermore, the real estate sector, a key consumer area for stainless steel, continues to show sluggish performance.

Nickel demand is rapidly transitioning from traditional stainless steel applications towards the new energy battery sector. High-grade nickel products, such as nickel sulfate used in power batteries, have become a strong engine for demand growth. Furthermore, demand for power batteries continues to rise, benefiting from the growth of new energy vehicles. According to data from the China Automotive Battery Innovation Alliance (CABIA), China's cumulative power battery installations reached 299.6 GWh in the first half of this year, a year-on-year increase of 47.3%. However, a deeper look reveals that cumulative ternary battery installations were 55.5 GWh, accounting for only 18.5% of total installations and representing a year-on-year decrease of 10.8%. In contrast, cumulative lithium iron phosphate (LFP) battery installations were 244.0 GWh, constituting 81.4% of the total and showing a year-on-year increase of 73.0%. The primary reasons for the slowdown in ternary power battery growth are the higher costs of nickel and cobalt raw materials and volatile policies in their countries of origin. Amid an intensifying price war in the new energy vehicle market, manufacturers increasingly favor LFP batteries due to their lower cost and more stable supply channels.

Industry Policy:

Nickel supply is linked to Indonesia's mining policies. The RKAB (Work Plan and Budget) policy serves as a key regulatory instrument for Indonesia's management of mineral and coal mining activities. Recently, the Indonesian Ministry of Energy and Mineral Resources (ESDM) proposed changing the mining permit approval cycle from every three years to annually. Furthermore, in April, the government enacted Regulation No. 19, adjusting the nickel ore royalty from a fixed rate to a floating tiered structure tied to the HMA benchmark price.

The HMA benchmark price, issued by ESDM, is calculated twice monthly. The first-half price is based on the average LME Official Settlement Price from the 5th to the 25th of the preceding month, while the second-half price uses the average from the 19th of the previous month to the 9th of the current month. This benchmark primarily determines the monthly nickel ore sales reference price and the applicable royalty rate, representing a typical benchmark-based settlement mechanism. According to Mysteel, the price of $50.52/wmt for Indonesian 1.6% Ni ore on September 15, the cost per tonne of nickel ore is estimated to increase by $2.02/wmt. This policy aims to boost domestic fiscal revenue while supporting the development of the new energy industry.

As the world's largest nickel consumer, accounting for approximately 60% of global demand, China's consumption volume is also influenced by policy direction. Stainless steel forms the backbone of manufacturing, while batteries are the heart of new energy vehicles. China's "Large-scale equipment upgrades and consumer goods trade-in programs" policy in 2025 has substantially stimulated consumption in these two sectors. According to Mysteel, apparent stainless steel consumption in the first seven months of 2025 reached 19.3618 million tonnes, up 3.5% year-on-year. Despite weaker construction sector demand, policy stimulus supported overall consumption growth. Data from the China Association of Automobile Manufacturers indicates domestic sales of new energy vehicles reached 6.913 million units from January to July 2025, up 32.3% year-on-year. However, this demand has not fully translated into higher ternary battery consumption, with installation volume actually falling 9.7% year-on-year, primarily due to substitution by lithium iron phosphate batteries.

On the other hand, China's new energy vehicle promotion commenced on a large scale in 2014. As these early-generation vehicles reach the end of their lifespan, power batteries are entering a phase of retirement. In February this year, an executive meeting of the State Council reviewed and approved a relevant plan, mandating a recovery rate of no less than 98% for electrode powder materials after battery crushing, which includes significant amounts of energy metals like nickel and cobalt. According to disclosures by GEM, the company has already addressed technical challenges related to the efficient recycling of nickel, cobalt, and lithium, the complete recovery of lower-value elements like phosphorus, graphite, and iron, and the management of pollutants, achieving recovery rates for nickel and cobalt exceeding 99.5%. Furthermore, in June, Chinese customs eased import restrictions on recycled black mass feedstock, aimed at ensuring a stable raw material supply for the battery industry.

Written by Cora Ji, jiruyan@mysteel.com