Mark Selby – Is Nickel On The Comeback Trail? (Transcript)

Canada Nickel Co Inc
  • TSX-V: CNC
  • Shares Outstanding: 68M
  • Share price C$1.15 (29.05.2020)
  • Market Cap: C$81M

Interview with Mark Selby, Nickel Market Commentator and CEO of Canada Nickel Company (TSX-V:CNC).

Following on from our recent interview to discuss his blossoming nickel exploration and development company, Selby is back to discuss the state of the nickel market.

First up, what is Selby’s take on the global metals markets? Has the market bottomed out? He thinks in China the market has reached the bottom, based on various metrics. The latest data in China for copper, the largest metal by market volume, has seen the premium of the price in China at 18-month+ highs. Selby likes to use copper concentrate terms as a reference point for the wider market, because at these “inflexion points;” the Chinese decide that the copper price is low and try to obtain as much as possible in any form: cathodes, concentrates, scrap etc. They just want copper on the way at today’s price. Copper concentrate terms are currently at “multi-year lows.” Time to get excited? Is this a sign to make metals investors feel bullish? There are significant Year-On-Year (YoY)increases in imports for a “bunch of materials.”

What strategy will the Chinese government adopt? Play catch up with production or carry on as usual? Selby states that, based on several metrics, the Chinese government is trying to drive metal production via infrastructure and construction spending. 6-weeks ago, cables producers that feed this supply chain have been up over 100% of capacity. Anecdotally, he says that excavator sales are up 60% Year-On-Year. There is clearly a “big shove” happening to get the Chinese economy going again.

This is great for copper, but what about metals with different supply dynamics. He states that while speculation on a several hundred thousand tonnes of copper might be possible, it won’t happen for bulk metals. Iron ore imports have been “rocketing” into China, and iron ore prices are at “very, very, very solid levels.” The fact we are witnessing this sort of market behaviour in copper, bulk metals and in other economic indicators, this helps confirm that we are back on the way up. For nickel, Selby claims stainless prices are up year over year. Stainless steel inventories have come down a little bit, but they still have quite some way to go. In terms of a specific positive indicator for nickel, we are observing the price discount between nickel pig iron produced in China and nickel has closed a lot. On the supply side, all of the mines in the Philippines have been shut down, which has massively hampered nickel supply. We are seeing ore imports on the ground hitting multi-year lows in China.

Investors are now coming into the nickel space as evidenced by Canada Nickel’s rising share price. Selby is hoping to capitalise on this with a U.S. listing for Canada Nickel: this is something that is definitely on the cards in the not-so-distant future.

We Discuss:

  1. China’s Number Announcement: Situation of the Metals Markets
  2. Catch Up vs Stay at Normal Levels: Chinese Government Decisions
  3. Looking for Clues in Copper, Base and Bulk Metals: Where are These Markets Going?
  4. Nickel Might See Some Blue Sky: Investors are Coming Back?
  5. Canada Nickel: Listing in the US?

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Mark. How are you doing?

Mark Selby: Great, Matthew. Good to see you again. 

Matthew Gordon: A long time – it has been days. I don’t see you for months and then you show up.

Mark Selby: Bang, bang. There you go.

Matthew Gordon: Fantastic. Good. I’m glad that I’m talking to you because I wanted to catch up on something that we talked about a few weeks ago, which was trying to identify bottoms; bottoms of the market and how you went about doing that. And I know we started a conversation, we said we’d kind of pick up again because the market has been through a few waves, which we talked about, I think way back when, in December about the scrap market being influential about Nickel, but then we’ve obviously had a few market movements as well. So, what’s your take on this with regards to the metals market at the moment? Have we reached the bottom?

Mark Selby: Yes, I think in China, I think we have, based on the various metrics. If you go back to the discussion we had earlier, I talked about a bunch of market premium type information that’s there, taking a look at changes in pricing for very metal and various forms and how that’s stacking up. And then 3, in terms of,  what’s happening in the scrap market, that’s there. So, yeah, no, the latest sort of data over China over the last month or so, Copper is always the biggest metal so obviously that is a good indicator. And so you see, the arbitrage –  the premium of the price in China versus outside of China, so there’s an incentive to import material into China; is that 18-months plus highs?

The one that I always like to see is Copper concentrate terms because what happens at, again, at these inflection points, both top and bottom, we’re talking about a bottom here, the Chinese just decide that Copper is cheap at this price and I think the price is going to go higher, so I just want to grab Copper in whatever form it’s in: cathode, concentrate, scrap, whatever. I just want Copper units on my way, priced at today’s price, and if they get delivered in a month, two months, four months, I hopefully am going to sell that at a great big profit. And so, Copper concentrate terms again are at multi-year lows. So that is a real sign that sort of the buy is on right now.

Another; the Chinese import data for the month of April came in and you see stuff, again, given how brutal things were in February, March, you’re going to see month over month increases. But we’re actually seeing significant year over year increases in imports in a bunch of materials as well.

Matthew Gordon: But that’s them playing catch up, right? All that’s telling us is that they’re playing catch up because not much was happening for a while. So, what do you think the government is instructing Chinese companies to do now? Play catch up or just run along the normal levels here? I mean, because we have been talking to Uranium companies and we have looked at some of the big producers there, they’re saying they’re not going to play catch up, they’re just going to continue at the rates they were pre-COVID, et cetera. So, have you any insight as to what is happening in China?

Mark Selby: Yes, I mean, again, in China, every recession, 2001, 2003, 2008, and slow-down in the middle part of the last year, one of the big levers is just in terms of infrastructure and construction spending; they are sort of the 2 key metrics. There is no one state grid. I mean, the state grid company of China uses a significant portion of the world Copper supply. It’s a pretty crazy percent, I can’t remember exactly what it is, but it’s much larger than most countries in the world, I think, except for China – just with 1 company. But 6-weeks ago producers in China who produce the cables and so forth, that sort of feed that supply chain for state grid, were up over a 100% of capacity at that time.

There are some other metrics that commodity analysts look at, and again, I would encourage people to go and read as many different commodity analysts, because they each, a lot of people have their ‘favourite indicator’. So, one that I’ve seen a couple of times and much like, is excavators, right? You’re not going to speculate on excavators. It is used very broadly. And excavator sales are up 60% year over year in April. So that’s a pretty good sign that there’s a big shove happening to get the economy going from the government in China.

Matthew Gordon: Okay. So, that is great for China, like I said, that’s great for Copper, but are there other metals which will give us clues as to what’s going on, like say bulks for instance. I mean, what’s happening there?

Mark Selby: That’s a very good point. Again, you have to be careful not to just look at one metal because the supply dynamics of that specific metal might be influencing what’s going on. But one of the things I always like to check to see what’s going on is, is if you see a few base metals moving and then you see the bulks moving, because again, it’s easy to speculate on a few thousand tons of Copper and shove it in the warehouse somewhere, but you’re not going to speculate on a 200,000t iron ore shipment and think about storing that for three or four months. So, iron ore imports have been rocketing into China. And so, iron ore prices, again, are at very, very, very solid levels. So, the fact that you’re seeing this in Copper, seeing this in the bulks and then you’re seeing these other economic indicators, you were talking about excavator sales and so forth, I think that really helps confirm that we’re on our way up here.

Matthew Gordon: And what do you think that means for Nickel?

Mark Selby:  I think that the nice thing is, in terms of Nickel, we’re seeing the same sort of things happen. So, stainless prices are up 10% year over year, even though stockpiles again, we talked earlier about Nickel, about how prices were way too high and had to correct. And we’re going to be along the bottom here is a stainless inventories have built up quite a bit in China as we fell down that price. Inventories have come down a bit. They still have a way to go. We’ll see, maybe by the end of the May, we’re a long way back to where we were because stainless prices are already up 10% off the bottom. So that’s a pretty good sign. Again, they’re seeing their order books come in. If they’re already lifting prices with a bunch of inventory on the stainless steel side, still sitting around.

In terms of Nickel metal specifically, what we’re seeing is the discount in China between the Nickel pig iron produced there and Nickel has closed quite a bit. The R that I talked about in Copper is not quite open yet, but it looks like it’s heading in that direction. And then very importantly on the supply side, one of the things, because I had talked before, initially back in September, that we’re going to have a July, August turn and then post-COVID I said, okay, it’s off to year-end. But it might actually be coming back in towards maybe September, October now.

Another thing is that Indonesia banned ore exports in January 2020, that was going to cause stockpiles to shrink. Well, COVID has basically shut down all of the mines in the Philippines, which are sort of the replacement source for some of what Indonesia was shipping. So, we’re seeing ore imports on the ground in China, again, approach multi-year lows. So, that’s really setting up for that supply squeeze within China. Now, Indonesia’s growth there is up by 50% or more in terms of Nickel, pig iron, coming out of China so that’s offsetting some of the gap. But it looks like things will be tightening up, definitely in the second half. So, I am quite keen to see that coming down the pipeline for Nickel.

Matthew Gordon: Yes. That’s fantastic. I mean, that’s very good news for Nickel, but what do you think it means for investors? You had said, okay, this may be a few months out here, but now with what’s happening in the market are you seeing Nickel investors coming back in? I know you at Canada Nickel, your share price has tripled and it’s all good news for you, but what about some of the other bigger players, are they seeing a renewed interest in the market?

Mark Selby: I don’t know in terms of how the equities have yet to respond to that. Again, prices of commodities have come up off the bottom. But the thing I would encourage investors is, is again, when you have these turns, they don’t happen gradually and you kind of think, Oh, I’ll maybe pick some up next week or in two weeks, or I’ll gradually get back in. You always have a short covering that happens at the bottom and you end up with these, all of a sudden you wake up and copper prices are up 15% or 20% or 25%, and the liquid copper equities have started to move pretty dramatically. And again, in any market turn, it’s going to be the most liquid names that go first and then it starts trickling down. So, in terms of your junior Explorer at this point in time, you still have to sort of trickle down that pipeline. But it’s when you start to see these signs, start to get ready and then watch if you can start to see that cascade happening down towards whatever type of companies you invest in.

Matthew Gordon: Perfect. Can I just ask you very quickly, I know we spoke at the beginning of the week about Canada Nickel, but we’ve had such a good response to that, and some of the questions that came back was, is there going to be a US listing?

Mark Selby: Yes, we’re definitely, that’s the next listing that we want to get done. So, we will work to get a full OTC QX listing, because I know that makes it easy for US brokers to trade the stock for their clients and so forth. So yes, that’s definitely coming down the pipe. And we’ll get back to you and let you know as soon as it’s ready to go.

Matthew Gordon: Okay. Well, watch this space, and look, Mike, thanks very much for coming on and answering some these questions. It helps us to get back to, the viewers and followers of the show, who are always quite engaged when it comes to Nickel so, I appreciate your time and hopefully I’ll see you soon.

Mark Selby: Yes. Most definitely, Matt. Take care.

Check out another interview with Selby here.

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