The Nickel Supply Chain: From Mining to Battery and Stainless Steel

Nickel supply chain defined The nickel supply chain runs from two fundamentally different ore types — laterite and sulfide — through primary processing and refining, to two major end markets: stainless steel (which takes about 70% of demand) and lithium-ion batteries (a fast-growing segment). The chain is complicated by the fact that nickel comes in three commercially defined grades — Class 1, Class 2, and Class 3 — each suited to different end uses and subject to different pricing benchmarks, with only Class 1 deliverable against LME contracts.

Table of Contents

1. Two Ore Types: Laterite vs Sulfide
2. Class 1, Class 2, and Class 3 Nickel Grades
3. The Supply Chain Mapped Stage by Stage
4. Stainless Steel: The Dominant Demand Driver
5. Battery Demand: The Fast-Growing Segment
6. Indonesia’s Export Ban and Its Supply Chain Impact
7. The LME Nickel Crisis: March 2022
8. Frequently Asked Questions
9. Key Takeaways

Two Ore Types: Laterite vs Sulfide

Nickel ore comes in two fundamentally different geological forms, and the distinction matters for the entire downstream supply chain.

Laterite ore forms in tropical and subtropical regions through millions of years of weathering of ultramafic rock. The weathering process concentrates nickel in a reddish clay-like material. Laterites account for approximately 60–70% of the world’s nickel mineral resources.

Key characteristics of laterite:

• Found in tropical countries: Indonesia, Philippines, New Caledonia, Cuba, Brazil, the Dominican Republic
• Lower nickel grade: typically 1–2% nickel content
• No significant cobalt or copper byproduct (unlike sulfide ores)
• Processing is energy-intensive and expensive: requires pyrometallurgical (high-temperature) or hydrometallurgical (acid leach) methods
• Abundant: much of the world’s undeveloped nickel resource is laterite

Sulfide ore forms through geological processes that concentrate nickel, copper, cobalt, and platinum group metals together in sulfide mineral deposits. They are less common but historically more valuable per tonne.

Key characteristics of sulfide ore:

• Found primarily in Canada (Sudbury, Ontario — the largest), Russia (Norilsk), Australia (Western Australia), and Zimbabwe
• Higher nickel grade: typically 0.5–3%, sometimes higher in rich pockets
• Valuable byproducts: copper, cobalt, and platinum group metals (PGMs) from the same ore body improve project economics
• Easier to process into Class 1 refined nickel using conventional flotation and smelting
• Depleting: major high-grade sulfide deposits are being worked out; new discoveries are increasingly rare

This difference in ore type directly determines what kind of nickel product the mine can economically produce — and therefore which segment of the supply chain it feeds.

Class 1, Class 2, and Class 3 Nickel Grades

The nickel industry divides its products into three commercially recognised classes based on purity and form. Understanding these classes is fundamental to understanding nickel market dynamics.

Class 1 nickel (≥99.8% nickel purity)

Class 1 nickel is highly refined metal: full-plate cathodes, cut cathodes, rounds/pellets, and briquettes. It meets the London Metal Exchange’s delivery specifications and is the only form deliverable against LME nickel futures contracts.

Class 1 products are produced from sulfide ore through conventional smelting and electrorefining, or from laterite through high-pressure acid leach (HPAL) followed by refining. Major producers include Norilsk Nickel (Russia), Vale (Canada/Brazil), and Nickel Industries (Indonesia).

Class 1 nickel is used in:

• Specialty stainless steel and superalloys requiring high purity
• Plating applications
• Historically, battery precursor (nickel sulfate) production — though this is increasingly being served by Class 3 products

Class 2 nickel (lower purity: nickel pig iron and ferronickel)

Class 2 nickel products are not refined to Class 1 purity. The main Class 2 products are:

• Nickel Pig Iron (NPI): a Chinese and Indonesian innovation — laterite ore is smelted in blast furnaces (similar to iron production) to produce a low-grade nickel-iron alloy (typically 4–15% nickel content). NPI is used directly in stainless steel production. It cannot be delivered against LME contracts but is far cheaper to produce than Class 1 nickel.
• Ferronickel (FeNi): a higher-grade alloy (25–40% nickel) produced from laterite ore, used in stainless steel production. New Caledonia, Indonesia, Greece, and Colombia are significant ferronickel producers.

Class 2 products are used almost exclusively in stainless steel manufacturing, where iron content is not problematic (stainless steel contains iron as its primary component). The pricing of Class 2 products is negotiated OTC at a discount to the LME Class 1 price.

Class 3 nickel (intermediate products for the battery chain)

Class 3 is a relatively new commercial category, driven by the growth of battery manufacturing. Class 3 includes:

• Mixed Hydroxide Precipitate (MHP): produced from laterite ore via HPAL. MHP contains approximately 37–42% nickel and 2–5% cobalt. It is the key intermediate product for producing nickel sulfate (the form used in battery cathode precursor manufacturing).
• Mixed Sulfide Precipitate (MSP): similar to MHP but in sulfide form.
• Nickel matte: a higher-purity nickel-copper-cobalt sulfide product used as a refining intermediate.

MHP in particular has grown rapidly as the battery supply chain scaled. It bridges the gap between laterite mining (abundant and cheap) and battery-grade nickel sulfate production, without the expense of going all the way to Class 1 electrolytic nickel first.

Grade	Purity	Form	Primary use	LME deliverable?
Class 1	≥99.8% Ni	Cathodes, briquettes, rounds	Specialty stainless, plating, some battery	Yes
Class 2	<99.8% Ni	NPI (4–15% Ni), ferronickel (25–40% Ni)	Standard stainless steel production	No
Class 3	Intermediate	MHP, MSP, matte	Battery precursor (nickel sulfate)	No

The Supply Chain Mapped Stage by Stage

The nickel supply chain has five stages, and the path through those stages depends on which ore type you start with.

Stage 1 — Mining

Laterite mines: open-pit excavation of tropical weathered rock, typically in Indonesia or the Philippines. Low capital intensity per tonne but large volumes required given low ore grades.

Sulfide mines: underground or open-pit mining in Canada, Russia, Australia. Ore is blasted, loaded, and hauled to a surface processing facility.

Stage 2 — Primary Processing

For sulfide ore: crushing and flotation produces a nickel-copper sulfide concentrate (typically 10–25% nickel). The concentrate is shipped or piped to a smelter.

For laterite ore (two routes):

• Pyrometallurgical: ore is dried and smelted in an electric arc furnace (RKEF — rotary kiln electric furnace) to produce NPI or ferronickel (Class 2). This is how Indonesian NPI is made.
• Hydrometallurgical (HPAL): ore is dissolved in hot sulphuric acid under pressure, then precipitated to produce MHP or MSP (Class 3). This is a more complex, capital-intensive process used in plants in Australia, the Philippines, and Cuba.

Stage 3 — Smelting and Converting (for sulfide route)

Sulfide concentrate is smelted in a flash furnace or electric furnace to produce nickel matte (approximately 65–75% nickel) and copper matte. The matte is then converted (removing sulfur) to produce a high-purity matte or a blister nickel product.

Stage 4 — Refining

For Class 1 production: nickel matte undergoes electrorefining (using electrolytic cells) to deposit pure nickel cathode (≥99.8%). Major refineries: Norilsk’s Kola refinery (Russia), Vale’s Clydach refinery (UK), and the Jinchuan refinery (China).

For battery-chain conversion: MHP or matte is dissolved in sulphuric acid and purified to produce nickel sulfate (NiSO4), the direct input to cathode precursor manufacturing.

Stage 5 — End Use

• Class 1 nickel → stainless steel specialty grades, superalloys, electroplating, battery nickel sulfate conversion
• Class 2 (NPI, ferronickel) → standard stainless steel (304, 316 grades)
• Class 3 (MHP, MSP) → nickel sulfate → cathode precursor (pCAM) → NMC/NCA cathode → lithium-ion battery cells

Stainless Steel: The Dominant Demand Driver

Stainless steel accounts for approximately 70–75% of global nickel demand. Understanding this is essential to understanding nickel market fundamentals.

Stainless steel contains 8–12% nickel (in 304-grade austenitic stainless, the most common type) or 10–14% in 316-grade (marine and food-grade). Nickel gives stainless steel its corrosion resistance and structural toughness.

China is the world’s largest stainless steel producer — making roughly 55–60% of global stainless steel — and therefore the world’s largest nickel consumer. Chinese stainless steel production drives nickel demand directly, which is why Chinese industrial indicators (PMI, property construction activity, manufacturing output) are closely watched by nickel market participants.

The rise of NPI was driven entirely by stainless steel economics. When nickel prices were high in the mid-2000s, Chinese stainless steel producers sought a cheaper nickel source. They found it in cheap Indonesian and Philippine laterite ore, which they shipped to Chinese NPI smelters. NPI production allowed Chinese stainless steel output to expand enormously without the constraints imposed by Class 1 nickel supply.

Indonesia replicated this model domestically after its export ban (see below) — building NPI smelters in Indonesia itself rather than exporting raw ore.

Battery Demand: The Fast-Growing Segment

Battery demand for nickel is the fastest-growing segment, even though it currently represents only about 10–15% of total nickel consumption.

High-nickel NMC and NCA cathodes (used in premium EVs) require nickel sulfate as an input. Nickel sulfate is produced by dissolving Class 1 nickel or Class 3 MHP in sulphuric acid and purifying the solution.

The shift to higher nickel content in battery cathodes — from NMC 111 (33% nickel) to NMC 622 (60% nickel) to NMC 811 (80% nickel) — has increased the nickel content per battery cell. More nickel per cell, combined with more cells per vehicle, has increased nickel intensity per EV substantially.

The critical supply chain challenge is that NPI — the cheap, abundant laterite-derived Class 2 product that feeds stainless steel — cannot be used directly in batteries. Batteries require high-purity nickel sulfate made from Class 1 or Class 3 intermediates. This creates a potential bottleneck: abundant laterite-derived nickel exists, but converting it to battery-grade material at sufficient scale requires either the expensive HPAL process or further refining of NPI.

Indonesia has invested heavily in this conversion — building HPAL plants and nickel matte-to-sulfate conversion capacity. Partnerships between Indonesian producers and Chinese battery companies (CATL, GEM) are central to this strategy.

Indonesia’s Export Ban and Its Supply Chain Impact

Indonesia’s export ban on unprocessed nickel ore is one of the most consequential industrial policy decisions in commodity markets in recent decades.

Background

Indonesia holds the world’s largest nickel reserves — primarily laterite ore in Sulawesi, Halmahera, and other islands. For years, Indonesia exported raw nickel ore to China and other countries for processing into NPI and ferronickel.

The 2014 ban

Indonesia first banned unprocessed mineral ore exports (including nickel) in 2014 under the Mining Law of 2009, which required mining companies to process ore domestically. The ban was partially relaxed in 2017 for nickel (allowing ore exports again under certain conditions) as domestic processing capacity was not yet sufficient.

The 2020 ban (and the permanent shift)

In January 2020, Indonesia reinstated the nickel ore export ban — this time permanently and without exceptions. The government’s goal was to capture more value domestically by forcing investment in Indonesian nickel processing. The ban was highly effective.

The results of the 2020 ban:

• China’s nickel ore imports from Indonesia collapsed to zero (Indonesia had supplied approximately 50–60% of China’s nickel ore imports)
• Philippines became the primary alternative nickel ore supplier to China, though with lower volumes and higher-cost ore
• Investment in Indonesian NPI and HPAL smelters accelerated dramatically, with Chinese companies building processing facilities inside Indonesia to retain access to the ore
• Indonesia’s NPI production grew to account for over 50% of global NPI supply by 2023

The ban fundamentally reshaped the geography of nickel processing. Rather than ore flowing to China for processing, processing moved to Indonesia. Indonesia’s share of global nickel supply (by refined equivalent) grew from roughly 10% in 2015 to over 50% by 2023 — a geopolitical concentration that now rivals China’s position in lithium refining.

The LME Nickel Crisis: March 2022

The March 2022 LME nickel crisis is the most dramatic single event in the modern history of any major commodity market.

Background

Nickel prices had been rising in early 2022 as Russia’s invasion of Ukraine raised fears about supply disruption — Norilsk Nickel, a Russian company, produces approximately 15–17% of the world’s Class 1 nickel. Speculators began building long positions.

A Chinese stainless steel company, Tsingshan Holding Group (owned by Xiang Guangda, widely known as “Big Shot” in Chinese markets), had built an enormous short position in LME nickel futures — betting that nickel prices would fall. Tsingshan’s logic was that its massive Indonesian NPI production capacity meant it could supply abundant nickel. What Tsingshan failed to account for was that NPI (Class 2) is not deliverable against LME nickel contracts, which require Class 1 nickel.

The short squeeze

On March 7–8, 2022, as nickel prices began rising sharply, short sellers including Tsingshan faced massive margin calls on their LME positions. To close their shorts, they had to buy LME nickel contracts — driving prices higher, which triggered more margin calls, which forced more buying.

On March 8, 2022, LME nickel hit $101,365 per tonne — more than doubling in two days. The price had been $25,000/tonne just weeks earlier.

The LME’s response

The London Metal Exchange took the extraordinary step of suspending nickel trading on March 8, 2022 — the first time it had halted a metal market since tin in 1985. The LME also cancelled approximately $4 billion worth of trades that had occurred in the early Asian morning hours of March 8 at prices the LME deemed to reflect disorderly conditions.

The decision to cancel trades was deeply controversial. Some market participants who had bought nickel at the elevated prices — and stood to profit from their positions — found their trades voided. Lawsuits against the LME followed. A UK court initially ruled against the LME before an appeals court overturned that decision in 2024.

When trading resumed in late March 2022, the LME implemented daily price limits (±15% from previous close) to prevent another spike. Nickel prices gradually normalised over the following months, settling back into the $20,000–30,000/tonne range.

The crisis exposed structural issues in the LME nickel contract: the growing disconnect between LME-deliverable Class 1 nickel (a shrinking share of total supply) and the much larger Class 2 and Class 3 markets that actually serve most nickel consumers.

Frequently Asked Questions

Why is NPI (nickel pig iron) not deliverable on the LME?

LME nickel contracts specify delivery of nickel with ≥99.8% purity (Class 1 forms: cathodes, briquettes, rounds). NPI contains 4–15% nickel in an iron matrix — it cannot meet this purity specification. This is not a technicality; it reflects a genuine physical difference. A stainless steel mill can use NPI directly as a nickel-iron alloy input, but a battery manufacturer or electroplater needs pure nickel. The LME contract was designed for pure metal users. The growing importance of NPI in the overall market has created an increasing divergence between the LME contract and physical market realities.

Which countries produce the most nickel?

Indonesia is the world’s largest nickel producer, accounting for over 50% of global mine production by 2023. The Philippines is second (laterite ore, no significant processing). Russia (Norilsk Nickel) is the dominant Class 1 nickel producer. Canada (Vale’s Ontario operations) and Australia are also significant. New Caledonia (a French territory in the South Pacific) produces ferronickel from its laterite deposits. China is a major processor but has limited mining.

How does the stainless steel market affect nickel prices?

Very directly. Since stainless steel consumes 70–75% of nickel, Chinese stainless steel production decisions have the largest single influence on nickel demand. When Chinese stainless mills run at high utilisation rates, nickel demand is strong. When they cut production (due to property sector weakness, power rationing, or demand slowdowns), nickel prices typically fall. This is why Chinese PMI data, property construction figures, and stainless steel production statistics are essential inputs to nickel market analysis.

What is nickel sulfate and why is it different from other nickel products?

Nickel sulfate (NiSO4) is a bright green crystalline compound produced by dissolving Class 1 nickel or MHP in sulphuric acid. It is the form of nickel used in battery cathode precursor manufacturing — specifically as the nickel input for NMC (nickel manganese cobalt) precursors (pCAM, or precursor cathode active material). Nickel sulfate is not a standard LME product; it is traded OTC at prices referenced to LME nickel plus a premium reflecting conversion costs and battery-grade purity requirements.

Did the March 2022 LME nickel crisis damage trust in the market?

Significantly, yes. The combination of the price spike, the trade cancellations, and subsequent litigation raised questions about LME governance and market structure. Several large financial institutions (including Jane Street Capital, which was among those whose profitable trades were cancelled) pursued legal action. The episode accelerated discussions about whether the LME nickel contract needs reform — particularly whether to introduce a broader-based contract covering Class 2 products, or to change deliverable grades to better reflect the physical nickel market. As of 2025, the LME contract remains Class 1 only.

How does the battery supply chain compete with stainless for nickel supply?

At present, stainless steel and batteries compete primarily for Class 1 nickel and for MHP (Class 3). Class 2 NPI goes exclusively to stainless. The competition for Class 1 nickel and MHP to feed battery nickel sulfate production has intensified as EV production has scaled. Long-term, as HPAL capacity grows to produce more MHP from abundant laterite ore, the battery supply chain may become less reliant on Class 1 nickel and more reliant on Class 3 intermediates — reducing direct competition with stainless for refined nickel.

Key Takeaways

• Nickel ore comes in two types: laterite (tropical, abundant, lower-grade) and sulfide (less common, higher-grade, with valuable copper and cobalt byproducts). Ore type determines what product the mine can produce.
• Class 1 nickel (≥99.8% purity: cathodes, briquettes) is the only grade deliverable against LME futures contracts and is used in specialty stainless steel, plating, and battery applications.
• Class 2 nickel (NPI and ferronickel, lower purity) feeds standard stainless steel production and is not LME-deliverable. China’s development of NPI from Indonesian laterite ore was a supply chain revolution.
• Class 3 nickel (MHP, MSP, matte) is the fast-growing intermediate category linking laterite mining to battery precursor manufacturing via nickel sulfate.
• Stainless steel consumes approximately 70–75% of global nickel demand; battery demand is growing rapidly from a 10–15% share and rising.
• Indonesia’s 2020 permanent export ban on unprocessed nickel ore forced Chinese processing investment into Indonesia itself, making Indonesia the world’s dominant nickel supplier by volume.
• The March 2022 LME nickel crisis — in which prices hit $101,365/tonne before trading was suspended and trades cancelled — exposed structural flaws in the LME contract and remains the most dramatic single-commodity market event in recent decades.
• For logistics professionals, the physical nickel supply chain involves bulk carriers moving laterite ore (Indonesia/Philippines → processing), concentrate tankers and bulk vessels (Canada/Australia → refineries), and container shipping for nickel sulfate and cathode materials in the battery supply chain.

Related Reading

To deepen your understanding of the topics covered in this article, explore these related guides: the base metal that shares smelting and refining infrastructure with nickel, a critical co-product often mined alongside nickel laterites and the stainless steel industry that consumes the majority of primary nickel.