Nickel remains the centre of decarbonisation despite speed bumps

If you’ve been following the Nickel price, you will have seen the craziness that took place in early March just after war broke out in Ukraine. The London Metal Exchange (LME) cancelled nickel trading 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 on earth happened?

For those that don’t know, there are two reasons:

1. Firstly, the war in Ukraine. Russia supplies 10% of the world’s nickel. Recent sanctions against Russia placed by the West prevented 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. 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,” held 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 faced US$8 billion (A$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 into Nickel stocks?

Not anymore. Nickel prices have finally pulled back below the level where the London Metal Exchange market closed March 4. That level is $28,919 a tonne. It dipped under this level for a few days in late March. Tsingshan Holding Group Co has pledged to reduce its short positions once “abnormal” market conditions subside. What makes this space attractive is the demand for nickel.

According to Japanese Sumitomo Metal Mining, global nickel demand used in batteries is expected to rise by more than 20% this year alone on rising demand for electric vehicles. At these, global demand for nickel will outweigh supply by 2024. That’s according to an analysis conducted by Rystad Energy. A shortage in less than two years is the message.

However, with the global shortage in mind, automakers may look to use alternative battery materials as well as search for previously untapped nickel deposits to bring down the nickel price. Rystad Energy’s says, “The shortage has no other obvious solution in sight that won’t tarnish carmakers with several unattractive ESG issues. Therefore, we expect Western EV manufacturers to explore alternative battery options as the nickel procurement problem becomes increasingly difficult.”

Mining companies are not finding enough new high-grade nickel deposits to keep up with battery production demands. As a result, automakers and battery manufacturers may seek alternative battery chemistries to meet demand.

So, the obvious place to look for nickel investors is with nickel explorers. An Aussie nickel explorer that could be worth a look at is: Nicklex (ASX:NKL) – WA based nickel explorer NickelX was granted $180k to being drilling at Cosmo South in the Wiluna greenstone belt.

The grant, made under the WA Government’s exploration incentive scheme, comes as NickelX is progressing the permitting program and also engaging a drilling contractor. The company has good reason to be confident of its drill targets, being only 10kms south from a major nickel mine operated by IGO Limited (ASX:IGO) and 20kms north of the BHP controlled Leinster nickel operation.

The grant will cover the drilling of 4 holes. Its results will test whether the near-surface and down-dip extension of the conductivity and magnetic anomalies identified.

Ishan Dan

Ishan is an experienced journalist covering The Inside Investor and The Insider Adviser publications.