Global demand for nickel is expected to increase to 2.11 million tonnes in 2017, up from 2.00 million tonnes in 2016, the Lisbon-based group said.
Global output of nickel is expected to rise to 2.05 million tonnes in 2017, up from 1.93 million in 2016. The INSG forecast a 67,000 tonne deficit for this year.
Stainless steel is by far the biggest consumer of nickel.
Demand is also growing from the aerospace industry and battery sectors, the INSG said, with nickel benefiting from increased use of renewable energy.
Nickel pig iron (NPI) production in China continued to fall in 2016 after Indonesia banned nickel ore exports in January 2014, while supplies of nickel ore from the Philippines also fell, it said.
Nickel pig iron is a lower nickel content substitute for refined nickel.
In Indonesia, NPI production is expected to increase in 2016 and in 2017 due to the ramp-up of new projects, it said.