Investment Funds Bet Nickel Prices Have Bottomed Out

It’s difficult to imagine that nickel was so volatile a couple of years ago it nearly broke the London Metal Exchange.

Most of this year the London market has done little more than plod along sluggishly at five-year lows hovering around the US$15,000-per-metric-ton mark.

Nickel, used in stainless steel and electric-vehicle batteries, is in vast oversupply thanks to an Indonesian production surge. The reminder arrives daily via the LME’s stocks reports.

LME inventory, both registered and off-warrant, has been climbing steadily and at 308,000 tons is now at its highest level since the exchange began publishing off-warrant data at the start of 2020.

So how come investment funds are also steadily building long positions in a bet that prices are set to recover?

Investment funds traded nickel from the short side last year as the LME price kept falling, and they were still net short as recently as June.

There are still plenty of bears among the investor community. But wagers on higher prices have been gathering since mid-April and at 45,321 lots, equivalent to 272,000 tons, they now mark the strongest bullish exposure since March 2022.

That was the month when the nickel price blew up and the LME halted trading, since when it has all been downhill.

It’s not as if the market is sending any momentum signals for funds to chase. LME three-month nickel has been stuck in a narrow US$14,800 to US$16,000 band since May.

It may simply be a collective judgement that if nickel won’t go lower, it must at some stage move higher.

Indonesia’s production boom has produced a tide of excess metal that has been flowing into the LME’s warehouse network.

The proportion of Chinese nickel in LME warranted stocks has climbed from zero in August 2023 to 65 per cent at the end of last month. China’s surging refined-nickel output has been powered by Indonesian ore, upgraded to an intermediate product and shipped to China for processing.

Indonesian metal is also leaking directly into the LME system after the exchange listed the country’s first brand last year. There were 8,838 tons of warranted Indonesian metal at the end of August.

Given the almost daily increases in LME inventory, nickel’s price showing has been surprisingly robust, which is one reason investors appear to be wagering it may have found some form of cost-support floor. Any sustained price rebound, however, will depend on Indonesia reining in its runaway nickel sector.

Just about everyone else has been driven out of business. Half a million tons of nickel supply has left the market in recent years, according to analysts at Macquarie.

Indonesian production, by contrast, is still accelerating. The bank estimates the country lifted output by 21 per cent year-on-year to 1.3 million tons in the first half of 2025, representing 69 per cent of global output.

Clearly, if anyone is going to alter the present oversupply dynamic, it is Indonesia.

There are indications the government is adopting a more hands-on regulatory stance in the sector. A task force has been seizing parcels of land at mining sites for lacking forestry permits.

But the most potent tool is the government’s mine production quota system. It plans next year to return to annual quotas to improve governance and control supply.

The whole Sino-Indonesian supply chain hinges on how much nickel is mined.

Ore availability has been tight this year, due to a mix of permitting delays, bad weather and falling grades. Indeed, the world’s largest producer has been importing a small but steady stream of ore from the Philippines since the start of 2024.

The Indonesian government could make availability a lot tighter. Nickel bulls can only hope it does.