It's been a great couple of weeks for nickel and copper. And what we've seen in terms of the reflation theme and the global economic recovery is that the bulls are starting to get their courage back again after the sell-off from the first run-up at the beginning of February.

The US dollar index

One of the prime drivers of metals prices is the US dollar index. When the US dollar is falling relative to other currencies, the US dollar price for those commodities goes up. It’s a pretty simple equation and it does have an impact. If you look back 10 or 15 years ago before China was a big thing, most macroeconomic commodity price forecasts were a function of IP Gross, US dollar index, and 1 or 2 other factors and that would explain 90% of whatever price movement had happened in the past.

The US has seen a bit of growth in the first quarter under the new Biden administration. The economic growth is outstanding. Partly what helped the bulls get their courage back up to step in again at these levels is that it grew at 6.4% in Q1/21, and the view is it will be higher in Q2/21, and in Q3/21 where we’re really going to start to see things moving.

The Biden State of the Union address

The other big news last week was obviously the Biden state of the union address. He showed up with about 6 different gas cans and has already poured several trillion dollars’ worth of gasoline on the fire to really get the US economy moving and hope to reshape it, ala Lyndon Johnson or FDR, in terms of the scale and scope of what he’s doing.

That happened in the same week that we had the US Federal Reserve say, ‘We’re not really that worried about inflation at this point.’ It’s that kind of dovishness that allows the currency traders to think, ‘Maybe we are going to see a little inflation out of the US, so I’ll back up into some other currencies that are going to see less inflationary pressure.’

How has Biden's speech been received? 

The right is raging about the big reach by the government into people’s lives again with all this deficit spending, although again the republicans under Trump weren’t so bad at deficit spending themselves.

But we are seeing a broader base of support for things in terms of infrastructure spending and expanding the safety net. The democrats have realised that part of the reason the Donald Trumps of the world are able to do what they do successfully is that when there is a group of people, now 2nd generational, who’ve been economically underprivileged and have seen nothing done about public services, education or things that might help get them out of poverty. Nor have they been offered any other alternative that’s going to get them out of their plight. That makes it easy for a demagogue to come along and talk to these concerns and why he’s going to save them with a wave of his magic wand and move on. This broad base help, across a range of different dimensions, is part of the democrat plan to help win back those voters and bring them back into the democratic fold.

What's interesting is that a few billionaires have come out in support that they are okay with paying higher taxes if it means better infrastructure and better public services, which will help make the US a better country. The big question is what is Biden going to be able to get through both houses of Congress. It’ll be an interesting 6-months in terms of how that all unfolds. From a Nickel and Copper perspective, the big focus on decarbonisation and electrification is a massive boost to the battery metals going forward.

There was a lot in the speech, and in terms of the EV component and trying to reduce Carbon footprints and CO2 emissions. They are really going after that in a big way, which can only be good for battery metals such as Nickel and Copper.

The INSG forecast

The other fundamental news last week: the International Nickel Study Group (INSG) put out their forecast. They do it twice a year in April and October. It’s made up of a group of countries and they have government representatives plus some industry reps.

It’s a bit of a consensus process and generally, this is never particularly right. But what’s interesting is despite this consensus approach, they had Nickel demand forecast up 12% in 2021. At the beginning of the year, we said Nickel demand is going to be 10% to 15% a year, and probably closer to the upper end of that range. Most industry analysts have single-digit forecasts, which are tough to follow, but they have to be cautious.

The other part is on the supply side, INSG also saw supply increasing by 230,000t to 272,000t. They had a surplus for the year, but the bullish undertone there is one thing but every analyst has a disruption allowance. It's a broad-brush approach where rather than picking on any one producer who may undershoot, they apply a percentage discount off the total number. INSG don’t have that in place. At a 2% to 3% disruption factor, they’re forecasting a deficit for the balance of the year. 

The INSG data is not necessarily the most current information, but it’s comprehensive. It’s a great dataset to have but it’s mostly available only by subscription. There’s actually very little data other than the monthly or quarterly balances that they do. The subscription is not expensive. If you want to deep dive into Nickel, it’s a good comprehensive source of information on everything that’s Nickel.

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