Rising nickel prospects offers supplier opportunity

by Ina King (Potgieter) October 15, 2020

Market experts predict that international demand for nickel will drastically rise in the medium term, and have therefore called for investment into the sector. Although COVID-19 had a negative impact on the commodity’s supply and demand, and the fact that the mineral shifted from a deficit to a surplus, the future of nickel is bullish. This is according to the Macquarie Group, a multinational commodities and global markets risk and capital solutions provider.

Q1 of 2020 saw a decline in international nickel production, possibly due to disruptions from COVID-19 in Madagascar and the Philippines, with the latter producing the lion’s share of the world’s nickel at 21.2%. The reduced production, however, was offset by a drop in demand for primary nickel – a result of decreased consumption attributable to the COVID-19 pandemic.

Even with this bleak picture, a consultant to the Macquarie Group, at the recent Paydirt Nickel conference in Perth, said that “immediate investment into the nickel sector is necessary to meet potential explosive demand post-2025.”

Deficit to surplus to deficit

2019 saw a nickel supply deficit of 35 000 tons. Conversely, a surplus of 90 000 tons was recorded for the first seven months of 2020, with full year nickel surplus anticipated to be 135 000 tons. This is exacerbated by the expectation that world nickel use will reduce further by 7.3% this year.

However, quite the opposite is predicted for the medium term. The expectation is that the market should equalise by 2024 and move to a deficit during 2025. Growth in the stainless steel market (one of the largest nickel processors) and the uptake of nickel in the market for lithium batteries (used in electric vehicles, cell phones, mobile batteries and many other smart technology devices) are two important factors that will determine the increase in demand.

A growing opportunity

There is increasing confidence that nickel may be heading back to boom conditions. This sentiment is attributed to the resurgence of electric vehicles and non-reported stockpiling by China in the industrial metals and nickel markets. The latter may indicate that demand is ahead of consumption – or that Chinese steel and battery producers are concerned about a shortfall in supply. This sentiment is created by reduced exports from major suppliers like Indonesia, which has banned the export of unprocessed nickel ore. Indonesia currently accounts for 8.1% of the world’s nickel supply.

Increasing prices

August and September 2019 saw nickel reach $16 000 / ton and $18 000 / ton respectively on the London Metals Exchange, which means the nickel price is up about 70% to 80% year to date. Increasing corporate activity among nickel mining companies, alleged stockpiling in China, an expected increase in demand from stainless steel processors and the anticipated rise in demand for electric vehicles indicate that nickel is in the early stages of a fresh escalating price movement. Analysts, therefore, predict further price increases.

Demand from the electric vehicle market alone is expected to increase 1 000% over the next 10 years, with the number of electric vehicles set to increase from the current three million to 30 million by 2030.

Wood McKenzie forecasts an average annual nickel deficit of 60 kt through to 2027, bringing nickel prices close to $25 000 / ton by 2025 and $28 000 / ton by 2027. This will be the first time since 2006 that the number of stock days of consumption is less than 100 days.

With vast nickel investment opportunities on the horizon, how should mining suppliers position themselves to capitalise on this expected commodity surge?

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Investing in nickel in Africa

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