Nickel is the fifth most common element on earth. It is ‘a naturally-occurring metallic element with a silvery-white, shiny appearance.’(1) Frankincense, gold and myrrh? No. Nickel, nickel and…
However, if you’re an investor, I doubt you’ll be reading those words with any bubbling sense of excitement; you want to know one thing and one thing only: “how is this big hunk of metal going to make me money?” To realise the full potential of investing in nickel, one must have all the facts available to them.
The following serves as the definitive nickel investment article. It is filled with inside knowledge that the average investor would struggle to access. One shouldn’t consider investing in nickel without reading it. Sit back, relax, and take in all the information you need to make money investing in nickel.
Nickel occurs extensively in the earth’s crust. It had been utilised for thousands of years as meteoric iron before its isolation as an element in 1751 by Swedish scientist Axel Frederik Cronstedt.
Nickle: Key Properties
- High melting point (1453 °C)
- Strongly resistant to corrosion and oxidation
- Can easily form an alloy
- Magnetic (at room temperature)
- Malleable and ductile
- Can be a catalyst
- Can be deposited via electroplating
- Harder than iron
- Good conductor of heat/electricity
- Average life in many applications of 25-30 years
Applications of Nickel
Nickel is used in a massive 300,000 products, with fields varying from:
- Engineering/Investment (33%)
- Transport (20%)
- Metal Goods (18%)
- Home Appliances/Electronics (13%)
- Building/Construction (10%)
- Others (6%)
- 70% of nickel’s specific application is alloying with a (minimum 10.5%) chromium to form stainless and heat-resisting steels. These steels form a multitude of items, from household cutlery to medical equipment.
- 9% is used in alternative non-ferrous alloys. These have a more specialised application in industrial, aerospace and military equipment.
- 6% of nickel is made use of in electroplating practices.
- 6% is used in iron and steel castings and low allow steels.
- A modern, rapidly growing use of nickel is in batteries for hybrid and fully electric vehicles and stationary storage. However, this still only accounts for 6% of present-day use.
- 1% of nickel is consumed to produce coins and for other electronic applications.
The Current Nickel Market: An Outline
The nickel price has demonstrated more volatility than a lion in a butcher shop. Since the 80s, Nickel has been regarded as a boom/bust metal that moves in giant super-cycles. The market saw a quite staggering boom, followed by a dramatic downturn and lingering bust.
Spot Price and Production Analysis
A primary factor behind nickel’s ascension to a high of $54,000/t in May 2007 was the rapid expansion of Chinese demand in the 2000s. However, this soaring price resulted in nickel becoming a victim of its own success. As prices rose, China began seeking more affordable options, thus turning to 200-series stainless steel (1-2% nickel) rather than 300-series stainless steel (8%) nickel; with this compression of demand, spot prices fell through a trap door.
When nickel prices were high, a new source of cheaper nickel was developed: nickel pig iron, a version of nickel created using low-grade laterite ores and blast/electric furnaces. Nickel pig iron now accounts for 35% of international nickel supply, up from ≈0 in 2006.
The decrease in Chinese demand and oversupply combined to push the spot price of nickel off a cliff edge. Brief increases in the spot price, specifically around 2009, were attributed to the Chinese government’s economic stimulus. Subsequent price increases have been created by a nickel ore export ban from Indonesia in 2014 (partially over-turned in 2017) and again last week. A planned Filipino ban in 2017 never took place.
Nickel’s recent low point came in February 2006, with a price of $8,000/t causing 80% of the industry to lose cash.
However, over the last three years a large, and mostly permanent reduction in supply of over 200,000tpa (particularly Chinese nickel pig iron), and an increase in worldwide demand has caused the nickel market to recover surprisingly quickly. While uncertainty still exists surrounding high global inventories and the government policy in Indonesia and the Philippines, this upwards trajectory has caught the attention of many investors. This is especially true given that by the end of 2020, total market inventories are projected to fall below normalised levels, which paints a very promising picture of an increased nickel spot price.
Reasons to be Excited
If you’ve read any base metals company’s press releases in the last ten years, you will have heard a seemingly indelible torrent of positivity regarding the incoming EV revolution. If the macro is to be believed, the growth of nickel will be propelled. While, at present, nickel’s preeminent use is in stainless steel, an EV revolution would skyrocket the demand of nickel.
2006-18 quantities of nickel use for specific purposes are as follows:
- 683,000t in stainless steel.
- 103,000t in batteries.
- 105,000t for other uses.
However, nickel forecasts for 2018-2030 place use at:
- 729,000t in stainless steel, a 46,000t increase.
- 825,000 in batteries, a massive 722,000t increase.
- 119,000t for other uses, a 14,000t increase.
Nickel now has two growth drivers, batteries and stainless steel, whereas before it was just stainless steel. When investors also account for nickel’s specific importance in batteries, this is even more promising; another metal that is currently crucial for the EV revolution is cobalt which I wrote an article on and you can click here to read. However, because of cobalt’s controversial ethical issues, such as using child labour in the Democratic Republic of Congo, companies have been pressured into signing up to the Responsible Cobalt Initiative. Some high-profile individuals like Elon Musk, and companies like Panasonic, have stated they are actively at work to virtually eliminate cobalt from their batteries. By reducing cobalt in batteries, the beneficiary is nickel; in a recent interview with Crux Investor, Conic Metals explained the development of batteries with as much as eight times more nickel than any other metal in the battery designs, including cobalt.
The Vanadium Redox Flow Battery (VRFB) is yet to become a serious contender in the market because of their excessive weight and the poor ratio of vanadium to electricity stored. Unlike the short high-burst energy of Lithium-ion batteries, VRFB is seen as a means of long-term energy storage to allow for management of peak-flow energy requirements (we will write about this in the next few weeks). At the end of the battery’s life, the Vanadium is reusable for either use in steel or a new battery. Nickel-lithium batteries are a future technological prospect and are predicted to hold more than three and a half times as much energy per pound as lithium-ion batteries, while also enhancing safety.
All the production signs for nickel are incredibly promising, so what about the price outlook?
The LME forecasts steady growth in the USD$/t spot price of nickel up until 2030:
In terms of constant 2018 dollars, the nickel price will have to average around $17,000 to incentivise sufficient new capacity to meet increased demand. Moreover, analysts have speculated the capital costs for non-Chinese and non-Indonesian integrated projects may need nickel prices above $25,000 to gain a return. However, increased EV demand is likely to be satiated by these cheaper projects in addition to high-pressure acid leach projects.
Inside Investment Tips
Now you’ve had some insight into the financials of the nickel market, it’s time to hear some crucial inside knowledge that could make or break your investment.
The primary drivers behind the EV hysteria are companies themselves. When you actually dig a little, the truth is the EV revolution is not as close as CEOs would like you to believe. Researchers are also uncertain as to when electric vehicles are going to take over. There are a lot of factors at play and while the trend is towards embracing EV to reduce our carbon footprint, there are still a number of psychological and financial barriers for the consumer to overcome.
The usability of this information will vary based on two things:
- Your confidence in the EV macro.
- Your expected speed of returns.
If you have a wholehearted belief in the EV macro, it doesn’t matter if it happens tomorrow, the next day, or in ten years’ time, it is going to happen, and when it does, prices are going to rise. Therefore, if you’re a patient investor with some time to spare and have disposable income that you can afford to wait for a return on, now could be a great time to invest in a nickel company.
However, if you don’t fully buy into the EV thematic, nickel isn’t the commodity for you. Perhaps you foresee a shift in direction when it comes to vehicular transportation, or perhaps you see nickel as a commodity that will become obsolete in batteries after further advancement. Maybe you believe there will be an even longer time scale of 20+ years before EV rises to prominence, in which case many of the companies you might invest in today could have gone under, especially given nickel’s track-record of erratic prices.
Lastly, if you’re an investor looking to make a quick buck, don’t listen to the hype. In Crux Investor’s interview with Conic Metals Corporation (https://www.youtube.com/watch?v=9PWkM9RxFy4), it was clearly laid out that current spot price increases are not due to electric vehicle demand, and are instead generated by asset discovery, general euphoria and the Indonesian export ban on nickel ore. The EV revolution is a few years away at best.
What Nobody is Telling You
…smelting companies will march to their own drumbeat
Some investors might view all the information already mentioned as more than sufficient for them to make an investment decision on nickel. However, there’s an incredibly important secret that big nickel mining companies aren’t letting you in on: the nickel smelters currently have a huge amount of their own raw product on site, and the smelting companies, in many ways, control the market and the ability of public nickel producing companies to forecast. This means nickel mining companies are at their mercy; smelting companies will march to their own drumbeat.
The Ten Commandments of Nickel Investment
To conclude this article, here are the ten things to be aware of when investing in the nickel market:
- Nickel is a volatile asset; its price is often unpredictable; depending on what type of investor you are, this is either an opportunity or a curse.
- The EV revolution is by no means just around the corner. Some say it is two years away from kicking in. Others point towards a longer timescale. However, nobody is disputing its inevitability.
- All financial projections point towards a prosperous future for nickel in batteries as there are very few large-scale operations globally; with nickel, scale is king.
- China, Indonesia and the Philippines are the foremost producers of lower quality steel, which contains only 1-2% total nickel. Indonesia has just stopped all exports of nickel.
- Nickel is almost certain to be central to any evolution generated by electric vehicle demand. Other battery metals (such as cobalt) lack its longevity.
- The smelters control the market. Until they can make money, no-one makes money.
- Not all nickel companies have the cash or assets to attract capital investment to last until the EV demand commences. Choose your nickel investment carefully.
- For the next 12 years, total nickel production is projected to be almost double what it has been for the last 12 years.
- As the nickel price recovers a lot of scrap metal will come into the market causing a dip in short-term prices until Q3/20.
- Don’t make investment decisions based on sentiment. Look at a company’s management and level of experience. Investigate their assets and potential. Analyse the point in the developmental cycle the company is at (ready to mine, or still exploring). Work out if the company’s priorities are aligned with its shareholders’. Finally, educate yourself fully on nickel by reading this article again and again and again. Oh, and maybe once more for luck.
An Example of a Good Nickel Company:
Examples of nickel companies I feel have great potential are Canada Nickel, Conic Metals or RNC’s Dumont asset. I’ll be writing a full piece on them in the near future; but, for now, happy investing!
Company page: http://www.cruxinvestor.com
If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.
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