Downside Risks Under Macro Bearish Dominance
The core tension in the current nickel market lies in the tug-of-war between persistently brewing macro bearish factors and industrial cost support, with the balance currently tilting toward the bearish side on a near-term basis.
On the macro front, heightened price volatility around the FOMC meeting is a high-probability event for base metals in the near term, and stage-specific pressure driven by financial attributes is difficult to avoid.
Based on aggregated institutional views, expectations for two to three US Fed rate hikes within 2026 have warmed markedly, though this is not a consensus as significant divergence exists among institutions. Two hikes is the mainstream view, three represents the hawkish scenario, and doves still hold to zero.
Near-term focus should be on how macro data shapes the path ahead, with two key nodes bracketing the month: the FOMC decision in the early hours of September 17 (Note: The US Fed has announced to raise rates 25bp to 3.75%–4.00% in September, its first hike since July 2023) and the September 30 core PCE print.
The former determines short-term policy direction, while the latter provides the final inflation validation for rate decisions. The market is closely watching the median of the new 2026 dot plot. If it holds at 3.8%, it implies "one and done"; if it rises to 4.1%, it signals another hike after September; if it climbs to 4.4%, it effectively tells the market that "the third shot is within range".
For the nickel market, the key caution is that amplified volatility could drive prices down excessively. As of the morning of September 16, nickel prices had fallen to a low of Yuan 120,270/tonne, with domestic refined nickel producers seeing losses widen continuously.
Based on a nickel price of $16,000/tonne and an MHP nickel payable of 88%, the cash cost of refined nickel is approximately Yuan 128,000/tonne. Historical data suggest that producers can tolerate losses of no more than Yuan 10,000/tonne; once losses exceed this threshold, the probability of production cuts rises sharply.
Against this backdrop, domestic refined nickel output has contracted significantly since Q2 this year, new project commissioning has been delayed, and only some leading producers currently maintain electrowinning nickel production to meet essential needs.
Recently, with production cuts advancing and inventories drawing down, domestic refined nickel premiums/discounts have strengthened. Although refined nickel costs may shift dynamically lower with nickel price movements, the market often ignores cost support during phases of excessive pessimism under macro sentiment dominance, leading to overshooting, a risk that warrants caution.
The recent price action has already revealed divergence, with some traders testing long positions at lows. However, the rising probability of continued rate hikes has made directional positioning increasingly unclear, intensifying the long-short tug-of-war. Some financial clients view this round of macro impact not as the starting point of a trend-driven short; if a "bad news exhausted" style pullback follows the rate hike, a stage-bottom rebound opportunity may emerge. Note, however, that the trigger prerequisite for such an opportunity is sufficient consensus on rate hikes and prices having already fully priced in expectations.
Source: SHFE
Q4 Fundamentals Weakening as Background Driver of Current Decline
In the fourth quarter, nickel pig iron (NPI) output is expected to continue to ramp up, pure nickel supply will likely recover slightly, and demand will enter the traditional off-season, shifting the supply-demand balance toward surplus conditions and raising market concerns about oversupply.
Caution is warranted, however, regarding potential bullish disruptions from Indonesia's 2027 RKAB quota policy in November-December 2026, which could revive expectations for a stage-specific nickel price rally around year-end.
Unlike last year, when the market lacked clear data references for quota scale and its corresponding supply-demand balance, the market will have a clearer benchmark once new quotas are announced following this year's operations. At the same time, slower demand growth in 2027 has gradually become a broad consensus. Therefore, once RKAB quotas are published, the market's directional judgment on nickel prices will be clearer; however, given the continued ramp-up of hydrometallurgical projects and room for optimization in Indonesia's nickel ore quota system, price highs are unlikely to revisit the January 2026 peak.
In summary, nickel prices year-to-date in 2026 have hovered high with higher averages compared with last year. Indonesia's sharp tightening of RKAB nickel ore quotas has compressed NPI supply at the source, while sulfur supply disruptions have constrained hydrometallurgical intermediates output. These supply contractions, combined with solid demand growth from stainless steel and lithium-ion batteries, have shifted the nickel price center markedly higher than in 2025.
Indonesia's Ore Control and Slowing Battery Demand as Key 2027 Battlegrounds
Taking stock of industrial trends and policy directions, the 2027 global primary nickel supply-demand landscape is characterized by "rigid supply constraints and structural demand divergence".
On the supply side, Indonesia will continue to strictly control nickel ore output, with RKAB quotas expected to remain tight, while strengthening maximization of local resource returns through unified nickel product export management, pricing mechanism reform, and a combination of tax policies.
On the demand side, the stainless steel sector may maintain incremental growth comparable to 2026, continuing to serve as the "ballast" of consumption; the lithium-ion battery sector, affected by LFP substitution and structural shifts in the EV market, is expected to see nickel demand growth slow markedly once again.
Overall, the 2027 global primary nickel market will remain in a supply-surplus position. Notably, major economies have been steadily ramping up strategic stockpiling in recent years, with the buildout of critical mineral reserve systems accelerating markedly. The impact of strategic stockpiling on refined nickel inventory changes carries considerable uncertainty.
Written by Aggie Hu, huchenying@mysteel.com
