BMO Capital Markets analyst Colin Hamilton said nickel was going through several transitions, including the slow shift from stainless steel to battery-led demand and the faster shift in nickel pig iron production from China to Indonesia.

Hamilton expects nickel prices to hold up better than other base metals in 2021, due to higher demand from the battery and stainless steel sectors.

While the refined nickel market was in surplus last year, mine supply is estimated to have dropped 6.5% year-on-year. Roskill estimates refined supply rose 4%.

"Essentially, the world was mining less nickel than it was consuming, which were it to persist would be a raw material constraint," Hamilton said.

"And while Indonesia has diverted mine supply to the growing domestic NPI industry, the net effect of the ore ban has still been closures. With this, nickel ore prices remain high, pushing up the cost of NPI output and underpinning the LME price at a higher level."

Roskill believes Indonesian NPI production jumped 67% last year, while BMO expects another 50% rise this year.

"Two other areas to watch will be Indonesia's growing presence as a stainless steel producer as well as its emergence as a potential battery manufacturing hub."

BMO also expects new projects outside Chinese influence to be pushed.

"We anticipate increased focus on new greenfield facilities where the environmental impact can be better designed for, though such options are few and far between," Hamilton said.

Roskill said several high-pressure acid leach projects under construction in Indonesia had been slowed due to the requirement to move from deep-sea tailings to on-land tailings storage.

"With sustainability concerns ranging from the large areas of land clearance involved in nickel laterite mining to the high energy consumption involved in nickel smelting, Roskill believes that ESG will become an increasingly significant component of the nickel market over 2021 and the years to come," it said.

The nickel price traded in a wide range in 2020, dropping as low as US$10,806 per tonne in March and rising as high as $17,539/t in mid-December for an average of $13,803/t for the year.

Nickel made a strong start to 2021, reaching a six-year high of $18,349.50/t on January 21.

"In a commodities price environment which in our opinion is close to peaking, we do like nickel in a relative sense," Hamilton said.

"Strength across nickel's key end-use sectors, particularly the late recovery in stainless, which remains nickel's main source of demand, is obviously positive for price momentum.

"Overall, we see potential for nickel to outperform the broader base metals complex, benefitting from the ongoing broadening of the global industrial recovery while being less exposed to China's impending real estate sector slowdown later in the year."

Roskill expects demand to recover through 2021 as COVID-19 vaccines are rolled out.

It said stainless steel demand would remain the main application for the next decade, but battery demand would start to eat away at the share.