Nickel Market Turmoil Fuels Calls for New Pricing Mechanisms

The ongoing upheaval in the global nickel market has triggered two lawsuits, a formal complaint, and the cancellation of a membership linked to the situation.

Hedge funds and trading houses have been offloading or abandoning nickel positions, reflecting widespread concern and declining trust in the London Metal Exchange (LME).

Nickel Sulfate vs LME Prices: A Disconnect Deepens

Nickel sulfate, crucial for nickel-cobalt-manganese (NCM) battery production, is increasingly priced outside traditional LME benchmarks. While nickel briquettes — one of the few LME-deliverable forms — were historically used in sulfate production, Chinese refiners are shifting toward cheaper alternatives like mixed hydroxide precipitate (MHP) and matte. These intermediates, however, are not deliverable on either LME or the Shanghai Futures Exchange (SHFE), contributing to a widening disconnect between traded prices and market fundamentals.

Exchange Liquidity Evaporates

Following the LME’s unprecedented suspension of nickel trading for eight days starting March 8, liquidity has sharply declined. Nickel prices, now under $30,000/mt, have seen daily trading volumes average just above 40,000 mt in May — down 35% year-on-year.

“You can still feel the disruption,” said a European nickel sulfate producer. “The contract isn’t functioning the way it used to.”

OEMs are reconsidering price linkage strategies. “We’re looking at moving to fixed-price contracts,” said a European automaker. “Sellers often break contracts when spot prices spike — we’ve seen this already.”

LME-SHFE Arbitrage and Chinese Positioning

China, a net importer of nickel, continues to monitor arbitrage opportunities between the LME and SHFE. However, both exchanges trade only nickel metal, not intermediates — a limitation cited by several market participants.

“We had inquiries about switching to SHFE pricing after the LME halt,” said a European trader. “But we couldn’t hedge without a Shanghai position.”

Chinese analysts echoed concerns that exchange prices no longer reflect battery sector dynamics. “Nickel pricing is a massive headache,” one analyst remarked.

Battery vs Stainless Steel Demand

Unlike cobalt and lithium, nickel demand is dominated by the stainless steel industry, which accounts for 70% of global consumption. Batteries make up just 5%. Still, S&P Global Market Intelligence expects battery demand to grow significantly, pushing the nickel market into deficit by 2026 and potentially reaching 35% of total demand by 2030.

New Pricing Methods Gain Traction

Despite the LME halt, MHP pricing is still loosely LME-linked, with recent payable values dropping from 90% to 68–70%. Nickel matte and other intermediates, like ferronickel and nickel pig iron, are increasingly priced on fixed bases — a trend likely to continue as Indonesian production ramps up.

“The fixed pricing method is less risky for the battery industry,” noted a trader in China. “It’s a trade-off that better reflects market conditions.”

Push for Nickel Sulfate Contract

Market participants are widely supportive of a dedicated nickel sulfate pricing mechanism. “We’ve outgrown the LME for battery materials,” a European producer said. “A nickel sulfate benchmark would be much more accurate.”

A Chinese refiner agreed: “A sulfate contract would be a very welcome development for the battery industry.” A South Korean battery maker added that shifting the index would be challenging but acknowledged strong interest among consumers.

Standardization of nickel sulfate remains a key hurdle, but many believe it’s a necessary step. “The battery markets will naturally evolve away from nickel metal,” said another European producer. “If launched, a sulfate contract would be perfectly timed.”