The increase is in sync with the number of expected nickel processing smelters, with four proposed operations for 2022, Bisnis Indonesia reported.

Demand is likely to surge thanks to the construction of a cathode precursor plant, Bisnis Indonesia said, and Indonesia’s Joko Widodo opened a battery factory for electric vehicles in West Java in September.

Indonesia is the world's largest producer of several key metals. The global share of nickel ore in the country is approximately 17%. Indonesia holds one of the largest nickel reserves in the world, encompassing roughly 22% of the global share.

Nickel demand is driven primarily by the stainless-steel sector, which consumes more than 70% of all nickel. Nickel is another mineral likely to be important in the energy transition, owing to the growth in demand for nickel-cobalt-aluminum batteries as are used in electric vehicles.

Nickel market

Nickel prices spiked toward the end of the year on market tightness and were further aggravated in mid-January with a market squeeze that saw the metal test the $24,000/mt mark, according to UK brokerage Sucden Financial, headed by head of research, Geordie Wilkes, in a research report.

Right now, both Shanghai Futures Exchange and London Metal Exchange markets are being squeezed and the price shows no sign of easing, Sucden said.

Chinese SHFE nickel inventories have not reflected the normal [Lunar New Year] seasonality of other metals in recent history, climbing over the holiday period each of the past five years, JP Morgan analysts said in a research note.

“However, at under 3,000 mt of nickel in SHFE warehouses, it’s kind of a moot point as exchange stocks are already at critical levels. In addition, LME nickel stocks have continued to draw down, now at 87,500 mt with only 46,000 mt on warrant," JP Morgan said.

The nickel shortfall could widen even further, according to Michael Cuoco, head of metals and bulks fund sales at StoneX Group.

“If they aren’t producing as much as possible already, producers are going to need more price incentive to bring capacity to 100%, if it’s at all possible,” Cuoco said.

There are a number of events which have the potential to push prices further in the quarter, this in light of geopolitical tensions between Russia and Ukraine, and the potential export levy from Indonesia, according to Sucden.

“The fundamental demand picture is going to be strong across the board ultimately -- and we range Q4 at $19,030-$25,200/mt,” Sucden analysts said.

Liberum is predicting a Q1 2022 nickel price of an estimated $18,000/mt, Standard Chartered's at $21,000/mt, and JP Morgan at $23,000/mt.

The LME three-month spot nickel price was assessed at $23,600/mt ($10.70/lb) as of 10:32 GMT Jan. 20, in comparison to the closing price of $23,187/mt on Feb. 9.