Most prices for industrial metals have been rallying amid a recovery in Chinese demand after sinking in March, with nickel one of the best performers among the base metals as investors expressed confidence about battery-nickel demand in line with the positive sentiment surrounding the electric vehicle sector.

Prices for most industrial metals, including copper, zinc, nickel and tin, recently increased above pre-pandemic levels, London-based Capital Economics said in a Sept. 10 note. The research firm expects prices to rise "a little more" by the end of 2021 due to expectations for a quick recovery by the Chinese economy and the country's fiscal stimulus focused on metals-intensive infrastructure.

Nickel prices rallied in August and hit their highest level since November 2019 at the beginning of September, according to a Sept. 9 note from S&P Global Market Intelligence Metals and Mining Research. The bullish investor sentiment for nickel was bolstered by Tesla Inc. CEO Elon Musk's July comments that the carmaker would offer a long-term contract to any company that could efficiently mine battery-grade nickel in an environmentally sustainable way, the analysts wrote.

Canadian mining company GIGA Metals Corp. was recently reported to be in talks with Tesla to discuss developing a large mine to provide low-carbon nickel for the electric-car maker's batteries.

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A robust recovery by the Chinese stainless steel sector and ongoing supply issues in the Philippines and Indonesia also provided fundamental support to the nickel price, according to Market Intelligence Metals and Mining Research.

Despite increasing demand from the EV sector, Australia's ANZ Research said in a Sept. 11 note that demand for nickel is "lacking a spark," and there may be a headwind lurking for the market in the form of decreasing stainless steel production. "The real growth engine for nickel demand is stainless steel, which accounts for over two-thirds of world nickel demand," the analysts noted.

The battery sector comprised just 10.5% of 2019 global nickel consumption. The stainless steel market is mainly driving the nickel price outside of China as the country is now "essentially self-sufficient," according to the note. The analysts also estimated that stainless steel production outside China will fall by 13.4% in 2020 and will not return to 2019 levels until 2023.

"In reality, it's still overwhelmed by the stainless steel industry. And with China moving to self-sufficiency, nickel's outlook is now tied to a desperately weak European market," ANZ Research analysts wrote.

In an August nickel outlook, Market Intelligence Metals and Mining Research said it does not expect demand from the battery sector to provide sustained support to nickel prices in the near term. The group estimated that global primary nickel consumption will fall 7.7% year over year to 2.2 million tonnes in 2020.

Market Intelligence Metals and Mining Research expects global sales of passenger plug-in vehicles to drop by 3.7% year over year to 2.14 million units in 2020 due to COVID-19 and put downward pressure on increasing demand from the sector. The group believes Musk's comments have got investors "overly excited" about near-term expectations for battery-nickel demand.