Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Is it too late to jump on the Nickel bandwagon?
The price of nickel is going nuts, soaring past US$100,000 a tonne.
The London Metal Exchange (LME) canceled nickel trading on Tuesday after an unprecedented 250% price rise was triggered by Western sanctions against Russia. The price surged to hit US$101,365 a tonne, the highest point ever seen on the LME.
So, what’s going on?
There are two reasons: firstly, the war in Ukraine. Russia supplies 10% of the world’s nickel. Recent sanctions against Russia placed by the West will prevent the supply of nickel produced and exported by Russia to the rest of the world. Nickel is a critical ingredient in the lithium-ion battery cells used in most electric vehicles. It is also used in kitchen cutlery. The massive surge and abrupt trading halt that ensued has many questioning US carmakers about their ambitious EV programs.
The next price spike was the knock-on effect caused by a vicious short-squeeze. According to Bloomberg, Chinese entrepreneur Xiang Guangda, known as “Big Shot,” holds a massive, short position in nickel through his company Tsingshan Holding Group Co, the world’s largest nickel and stainless steel producer.
Big Shot was on the wrong side of the bet, having built a massive short position in nickel futures when the conflict started pushing prices higher. According to media sources, he faces US$8 billion ($11 billion) in mark-to-market losses. While attempting to cover his shorts, the sudden price spike triggered the LME to temporarily halt nickel futures trading.
Is it too late to buy nickel stocks?
Probably. Remember GameStop? It’s the same thing. The horse has already bolted. Buying now is buying right at the top when the short covering squeeze is almost over. Nonetheless here are the ASX-listed nickel stocks:
Elon Musk was right when he tweeted a year ago, “Nickel is our biggest concern for scaling lithium-ion cell production.”
The obvious takeaway here is that the cost of EVs will go up to absorb the higher nickel prices, especially when Russian based Norilsk Nickel is the biggest provider of battery-grade nickel, at 15% to 20% of global supply. Most lithium-ion batteries used in EVs rely on nickel. But there is an alternative type of battery that Elon Musk is using in Tesla’s vehicles: lithium iron phosphate, or LFP. These batteries use iron phosphate in their cathodes and there is no nickel. They are lower-cost, but lower energy density, which means they are heavier per kilometre of range. Extra weight does hinder performance and handling. Tesla began using LFP batteries in its entry-level models and has lowered the cost of producing those models.
So, with nickel prices going through the roof, it’s going to cost a bucketload more to produce EVs, with the exception of Tesla. Maybe it’s time to load up on Tesla (NASDAQ.TSLA) shares?
