Indonesia supply caps support nickel; Middle East tensions add volatility: BMI

Research firm BMI, a Fitch Solutions company, has raised its 2026 nickel price forecast to $16,600 per tonne from $15,800, citing a structurally firmer market despite expectations that prices will moderate.

In its latest outlook, BMI said nickel prices started 2026 strongly, reaching year-to-date highs in January, but lost momentum after the onset of the US–Iran conflict in late February, which weakened broader macroeconomic sentiment.

Prices remain about 2.5% higher year-to-date at $17,241/t as of April 10, but have declined 4.8% from pre-conflict levels.

BMI expects geopolitical developments in the Middle East to continue driving short-term volatility. However, it said nickel price trends will be primarily shaped by supply-side dynamics in Indonesia.

“We expect the market surplus to widen modestly to around 324,000 tonnes in 2026, as Indonesia continues to expand capacity, which should keep prices below recent highs,” BMI said.

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Indonesia-led supply growth remains a key factor. Refined nickel production is forecast to rise by 9.8% in 2026, following 9% growth in 2025, further widening the surplus and limiting sustained price gains.

At the same time, supply-side risks—particularly related to Indonesia’s policies and input dependencies—are expected to provide some price support. The country’s high-pressure acid leach (HPAL) sector relies heavily on imported sulphur, around 67% of which comes from the Middle East. Any disruption could raise costs and constrain output.

Higher energy prices linked to the conflict are also increasing production costs for nickel producers globally, especially higher-cost operations.

BMI noted that Indonesia’s ore quota policy, although creating some uncertainty, is typically adjusted flexibly to meet downstream needs, reducing the risk of prolonged feedstock shortages. Any gaps are also likely to be partly offset by imports, particularly from the Philippines.

On the demand side, BMI expects global nickel demand growth to slow to around 3% in 2026 from 5.8% in 2025.

Demand will continue to be supported by stainless steel production and the energy transition, but growth in emerging sectors is moderating. China will remain the main driver, although expansion is expected to slow.

Outside China, demand growth will be led by clean energy sectors. However, macroeconomic risks linked to Middle East tensions—particularly higher energy costs—could weigh on consumption.

BMI also highlighted a structural headwind from battery chemistry shifts. The growing adoption of lithium iron phosphate (LFP) batteries, which do not use nickel, is outpacing expectations and limiting demand growth.

Looking longer term, BMI remains optimistic. It expects the market surplus to narrow as demand strengthens, with nickel prices projected to peak at $22,000/t in 2032 as the market moves into deficit.

The clean energy transition, including electric vehicles, battery storage and renewable infrastructure, is expected to drive sustained demand growth, although competition from alternative battery chemistries remains a key risk.

Editing by Reiner Simanjuntak