Mark Selby #03 – Nickel On The Comeback Trail? (Flashback to May)

We regularly talk with Mark Selby. He’s become something of our resident nickel expert. He is a renowned nickel market commentator and CEO of Canada Nickel Company (TSX-V: CNC).

So much has happened surrounding the EV revolution/battery metals thematic in the last few months. It’s always useful to rewind a few months to remind investors of some dynamics they may have forgotten.

At the time, based on all the data available to Selby, he believed that global metals markets had bottomed out, and this has since been proven to be true, with battery metal prices and, in particular, nickel prices beginning to rally once again. If we can uncover the key indicators that led Selby towards the suspicion, we can perhaps uncover the market dynamics that investors should watch closely in the future.

One such metric that was up for consideration regarded the price premium of copper, the largest metal by market volume. The latest data on the Chinese copper market, the largest consumer of copper at 51%, at the time of the interview painted a bullish picture: +18-month highs for the premium price of Chinese copper purchases.

Selby is a big fan of using copper concentrate terms as a general reference point for metals markets performance, because at a potential inflexion point, when the market because to climb from rock bottom, the Chinese strategy is to buy as much copper as possible when it considers the copper price to be ‘cheap.’ Therefore, whether it is cathodes, concentrates or scrap, the Chinese just want as much copper as possible on its way in any form. Copper concentrate terms were at “multi-year lows,” and this was yet another signal that investors should look at today.

The strategy that Selby thought the Chinese were deploying at the time has undeniably manifested in a variety of ways. There have been YoY increases for all manner of metals and products, as the Chinese government looks to drive metal production via spending on infrastructure and construction. If in doubt, buy your way out? Cables manufacturers that feed into the Chinese supply chain were up over 100% capacity, and China’s blueprint for economic stimulus was making Selby feel upbeat. Even excavator sales are claimed by some to be up 60% YoY. This “big shove” to get the Chinese economy back in the swing of things has been very beneficial to copper, with the copper spot price on the LME skyrocketing from US$5,825/t up to US$6,52/t today.

Matthew Gordon talks to Mark Selby, May 2020

Historically, when copper performs well, nickel also performs well. Both are crucial in the manufacturing sector, and both will have major applications in the EV revolution. The nickel price on the LME has risen from US$11,853/t to US$13,215/t since this interview was conducted. Stainless steel, currently the primary growth driver for nickel, has increased in price YoY. Moreover, stainless steel inventories fell at the time, and this has continued to be a feature of the new normal we are living in. Production isn’t as hindered as it was several months ago, but there are still unavoidable issues that are necessitating inventory consumption. Production has continued to be restricted, with some mines in the nickel haven, the Philippines, staying offline (all of them were offline at the time). Selby remarked that nickel ore imports on the ground in China were hitting multi-year lows. This is likely to continue for the foreseeable future, and tightening inventories can only ever really mean one thing…

With nickel equities rallying significantly right now, this bullishness shows no signs of slowing down. Aggressive subsidies for EVs in Europe and mandated infrastructure could accelerate things even further. Investors are starting to pile into nickel, and it’s no wonder; these trends are becoming increasingly prolific.

Another nickel-specific indicator Selby took a look at was the price discount between nickel pig iron produced in China and general nickel; it had reduced a lot.

Investors should be aware that though copper market movements are useful, countries will sometimes take a gamble by speculating on a few thousands tonnes. Therefore, investors should also pay attention to bulk metals; speculation won’t happen for these. At the time, iron ore imports were rocketing in China, with iron ore price at “very. very, very solid levels.” Investors should pay attention to the cohesiveness of metals market behaviour. If everything is going in the right direction, from copper to nickel, and from bulk metals to general economic indicators, it might be time for investors to throw their hats into the ring.

What did you make of Mark Selby’s interview? How have his May insights held up against contemporary developments? Comment below and we will respond.

Check out another interview with Selby here.

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