Nickel inventories on the London Metal Exchange (LME) have been declining since April.
Exchange inventories have fallen from 264,606 tonnes in the past six months to 110,688 tonnes, almost half of which have been cancelled in preparation for actual loading.
The time lag for LME has been tight since mid-October. The cash premium reached $190 per tonne last month and remained at $141 at Friday's close.
Some of the goods that leave the LME warehousing system are being shipped to China.
Since April, the country's refined nickel imports have accelerated significantly, with cumulative imports of 208,000 tonnes from January to October, up 96% year-on-year.
China's recent import demand is widening supply in markets already affected by strong demand this year.
China imported 35,500 tonnes of refined nickel in September and 34,500 tonnes respectively in September and October, the highest monthly imports since December 2017.
Cumulative imports in the first 10 months of this year totaled 208,000 tonnes, almost double the level of the same period last year and the highest level since 2016.
In recent years, the amount of refined nickel imported by China has been decreasing, as it has stepped up the procurement of raw materials, especially Indonesian nickel pig iron for the stainless steel industry.
Import shipments of such raw materials remained strong. From January to October, revenue from Indonesia increased by 21% year-on-year. Imports of intermediate nickel products increased by 29%, while imports of nickel ore and nickel concentrates increased by 16%.
However, the domestic refined nickel market has been tight, which has led to a rolling squeeze on the Shanghai Futures Exchange (ShFE).
Inventories on the Shanghai Stock Exchange have been at extremely low levels throughout 2021, closing at just 5,563 tonnes last week, and any ongoing rebuilding has been hampered by the limited number of non-Chinese brands that can be delivered on contract.
Those from Russian producer Norilsk are deliverable, and it is worth noting that total imports from Russia surged to 17,300 tonnes in September and October, exceeding the total imports in the first eight months of this year.
The supply of refined nickel in China has been limited this year due to the closure of maintenance of the main producer Jinchuan Group and the shift from the production of refined metals to nickel sulfate in Jilin Ji'en.
Recently, energy-saving measures in several provinces in China have hit electricity-hungry nickel pig iron producers, increasing the demand for alternatives to refined nickel.
While China's supply has been struggling, domestic demand has been booming this year as much else.
According to the International Stainless Steel Forum, most of the nickel is still being fed into stainless steel furnaces, and global stainless steel production recovered in 2021, up 25% year-on-year in the first half of the year.
Electric vehicle batteries are still a small part of nickel usage, but they are growing rapidly.
As the world's largest supplier of electric vehicle batteries, China's demand for battery-grade nickel is reflected in the overcharging import of nickel sulfate. Imports totaled 35,900 tonnes from January to October, up from 4,800 tonnes in the same 10-month period in 2020.
The comprehensive strength of the new and old nickel consumption industry was unexpected.
When the International Nickel Research Group (INSG) met in October 2020, it expected global demand to grow by 9% this year.
When it met in April 2021, it raised its demand growth forecast to 12%. The latest forecast for the Group's October meeting remains above 16%.
These are all high-growth figures, even taking into account the economic rebound caused by the COVID-19 lockdown last year.
They also translate into much larger-than-expected supply gaps, which have been hit multiple times in China and the rest of the world.
INSG forecast a supply-demand surplus of 68,000 tonnes for 2021 last October.
Fast forward to October this year, and its latest assessment is a supply shortage of 134,000 tons in 2021.
Even such drastic revisions may require further adjustments. The Group's latest September monthly update shows that 175,000 tonnes outstripping demand in the first nine months of the year.
INSG expects a modest surplus of 76,000 tonnes next year as demand for stainless steel surges and nickel supply recovers, particularly in Indonesia, where producers are rapidly expanding capacity.
However, many of them are taking the path of innovative technology and jointly trying to shift to the type of product used in battery manufacturing.
The risk of poor supply next year is one reason JPMorgan analysts expect the deficit to continue at least into the first half of 2022.
In fact, JPMorgan Chase & Co. has "significantly raised" its nickel price forecast for the first quarter of next year to $23,000 per tonne and $22,000 per tonne in the second quarter. ("Base and Precious Metals Outlook 2022," November 29, 2021)
After peaking at $21,425 per tonne in October, the LME three-month nickel price is currently trading at $19,800, the highest level since 2014.
As in the nickel market in the past, everything will depend on the situation in Indonesia, and the next wave of supply is building.
Until it arrives, however, the nickel market looks set to remain tight as the metal flows into China, shifting the supply squeeze from Shanghai to London.