The nickel market has returned to a state of balance, according to analysts at Macquarie Group. The fundamentals of the metal have improved since last year's price crash, leading to a rebalancing of the near-term market.

The analysts cite several factors that have contributed to this rebalancing, including the increasing production of high-nickel stainless steel in China and Indonesia, a slowdown in the growth of Indonesian nickel pig iron, and over 300,000 tonnes per year of nickel supply reductions.

Macquarie's analysts also note that recent years have seen a "significant under-reporting" of Chinese stainless steel production, leading the firm to raise its 2023 estimate for high-nickel 300-series grades to 19.9 million tonnes from 18.3 million tonnes. Additionally, the nickel surplus has shifted from Class 2 to Class 1, due to an increase in Chinese Class 1 supply and a decrease in its use by the steel and battery sectors.

Outside of Indonesia, production cuts reached more than 300,000 tonnes per year in 2023, with a further 100,000 tonnes per year of potential reductions anticipated this year. China and Indonesia continue to dominate global nickel supply and demand, with stainless steel accounting for the highest nickel usage and batteries now the second-largest consumer.

The analysts believe the battery market should recover this year after heavy destocking in the battery supply chain last year, despite some headwinds in the electric vehicle market. However, they caution that the "overhang of Indonesian production and capacity additions remains a deadweight for nickel prices," with Indonesia likely to reach 70-75% of global supply by 2028/29.Macquarie also notes that with a new government set to take office in Indonesia later this year, legislative uncertainties remain. The analysts believe there is a large potential for the new government to "significantly change some operating parameters," including changes to ore licenses, export taxes, and moratoriums on building new capacity.