It's hard to believe that nickel was so wild a couple of years ago it almost broke the London Metal Exchange (LME).
Most of this year the London market has done no more than trundle along lethargically at five-year lows either side of the $15,000-per metric ton level.
Nickel, used in stainless steel and electric vehicle batteries, is in massive oversupply thanks to an Indonesian production boom. The reminder comes daily in the form of the LME's stocks reports.
LME inventory, both registered and off-warrant, has been marching steadily upwards and at 308,000 tons is now at its highest level since the exchange started 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?
THE ONLY WAY IS UP?
Investment funds played nickel from the short side last year as the LME price sank ever lower, and they were still net short as recently as June.
There are still plenty of bears among the investment community. But bets on higher prices have been accumulating since mid-April and at 45,321 lots, equivalent to 272,000 tons, they now represent the strongest bullish engagement since March 2022.
That was the month when the nickel price exploded and the LME suspended trading, since when it has all been downhill.
It's not as if the market is generating any momentum signals for funds to follow. LME three-month nickel has been trapped in a tight $14,800-16,000 range since May.
It may simply be a collective calculation that if nickel won't go lower, it must at some point move higher.
INDONESIAN SUPPLY SURGE HITS LME
Indonesia's production boom has generated a wave of surplus metal that has been washing up in the LME's warehouse system.
The ratio of Chinese nickel in LME warranted stocks has risen from zero in August 2023 to 65% at the end of last month.
China's surging production of refined nickel has been fuelled by Indonesian ore, upgraded to an intermediate product and shipped to China for processing.
Indonesian metal is also seeping 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 rises in LME inventory, nickel's price performance has been remarkably resilient, which is one reason why investors seem to be betting it may have found some sort of cost-support floor
HITTING THE BRAKES
Any sustained price recovery, however, is going to be contingent on Indonesia hitting the brakes on its runaway nickel sector.
Just about everyone else has been forced out of business. Half a million tons of nickel supply has exited the market in recent years, according to analysts at Macquarie.
Indonesian production, by contrast, is still booming. The bank estimates the country lifted output by 21% year-on-year to 1.3 million tons in the first half of 2025, representing 69% of global output.
Clearly, if anyone is going to change the current oversupply dynamic it is Indonesia.
There are signs that the government is taking a more active regulatory role in the sector. A task force has been seizing plots of land on mining sites for lack of forestry permits.
But the most powerful lever is the government's mine production quota system. It is planning next year to revert to annual quotas to improve governance and control supply.
The entire Sino-Indonesian supply ecosystem depends on how much nickel comes out of the ground.
Ore availability has been tight this year, due to a combination of permitting delays, bad weather and declining 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 that it does so.
The opinions expressed here are those of the author, a columnist for Reuters.
