Why I Was Bearish Nickel

Executive Summary#

Executive summary

The surplus was real; the policy risk was underestimated

On 13 November 2025, I was bearish nickel at approximately $14,840 per tonne. The thesis was based on rapid Indonesian production growth, a large forecast global surplus, rising LME inventories and the growing use of lithium-iron-phosphate batteries that require no nickel.

The International Nickel Study Group’s October 2025 forecasts strongly supported the balance argument: a 209,000-tonne surplus in 2025 and a 261,000-tonne surplus in 2026. Indonesia was expected to account for approximately 66% of world mine production in 2025.

The bearish call was nevertheless invalidated within the following months as the market repriced Indonesian policy intervention and cost-curve stress. By 29 January 2026, my own follow-up research recorded LME nickel near $18,200–18,500 and switched to a bullish stance. The original thesis was fundamentally grounded but insufficiently attentive to the ability of the dominant producer to change quotas and expectations.

Investment View#

Positioning#

Market Background#

Nickel had been transformed by Indonesia.

Large investments in nickel pig iron, matte, mixed hydroxide precipitate and refining capacity had shifted the marginal unit of supply toward lower-cost, Chinese-backed Indonesian projects. US Geological Survey data estimate that Indonesia accounted for 62% of global mined nickel in 2024; INSG expected the share to rise to approximately 66% in 2025.

This concentration created two opposing forces. It made the physical surplus more credible, but it also made prices more sensitive to Indonesian permitting, quotas and industrial policy.

Investment Thesis#

1. A Large Global Surplus#

INSG estimated primary nickel production of 3.81 million tonnes in 2025 against usage of 3.60 million tonnes, implying a 209,000-tonne surplus. For 2026 it projected production of 4.08 million tonnes and usage of 3.82 million tonnes, widening the surplus to 261,000 tonnes.

Those figures provided a stronger basis for the bearish view than broad claims about weak demand. The market faced excess supply even if consumption continued to grow.

2. Indonesian Supply Was the Marginal Driver#

Indonesia’s production growth was unusually fast and spanned several product classes. New processing routes increased the ability to supply both stainless-steel and battery markets.

The bearish variant perception was that the market still expected cost pressure to force meaningful closures before the surplus had been absorbed. In practice, strategic financing and integrated operations could keep production running for longer than conventional cost curves implied.

3. LME Inventories Confirmed Physical Ease#

The original presentation recorded LME stocks above 250,000 tonnes and rising. An inventory build mattered because it converted a forecast surplus into visible exchange availability.

However, LME stock data do not capture the entire nickel market and can be influenced by deliverability, brands and warehousing incentives. They were confirmation, not a complete balance sheet.

4. Battery Chemistry Reduced Demand Convexity#

Lithium-iron-phosphate chemistry continued to gain share in lower-cost electric vehicles and stationary storage. LFP uses no nickel, reducing the sensitivity of battery demand to EV-unit growth.

This did not imply that nickel-intensive chemistries would disappear. High-nickel cathodes retained advantages in energy density and range. The correct conclusion was that battery demand had become less uniformly bullish than earlier forecasts assumed.

Catalysts#

Principal Risks#

The original work identified some of these risks but underweighted policy. In a market where one country controls roughly two-thirds of mine supply, production policy is not a peripheral variable; it is part of the core pricing mechanism.

Outcome and Reflection#

The bearish thesis did not survive the full horizon. By 29 January 2026, the subsequent Queen’s Tower Capital presentation recorded LME three-month nickel near $18,200–18,500, materially above the original reference price and expected range. I changed the view from bearish to bullish in response to the new setup.

On 17 July 2026, the LME official three-month nickel bid and offer were $16,320 and $16,330/t, respectively, and opening stocks were 274,584 tonnes. That later decline does not retroactively make the November short successful; the position had already been invalidated and the view changed.

Research Methodology#

The original reference price and trade framework come from the 13 November 2025 Queen’s Tower Capital presentation. Market-balance figures were checked against INSG, concentration against USGS and current reference prices against the LME.

Sources#

Originally researched and prepared by Srinivas Medida while serving as Commodities Sector Head at Queen’s Tower Capital, Imperial College Investment Society. Revised and expanded for publication on SM Research. Material public-market figures were checked against the sources listed below; contemporaneous presentation figures are identified as such. The investment view reflects the assessment made on 13 November 2025; the outcome section was updated on 19 July 2026. This material is provided for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any financial instrument.