Wood Mackenzie Flawed Research Obscuring a Colossal Metals Investment Opportunity for BHP

• BHP's recent downgrade of nickel price assumptions and market outlook seems misguided based on market fundamentals
• Flawed commodity research and forecasts from major firms are negatively impacting the nickel industry and workers
• Indonesia's control over nickel supply and steady demand growth paint a bullish long-term picture for nickel prices
• Nickel demand was significantly underestimated by top forecasters, with the market hitting their 2030 projections in 2023
• Canada Nickel is rapidly advancing its Crawford nickel project and unlocking a promising new nickel district in Ontario

Nickel, a key industrial metal used in stainless steel and electric vehicle batteries, has seen its fair share of ups and downs in recent years. However, a closer examination of market fundamentals and supply-demand dynamics reveals a compelling long-term investment case for this critical commodity. Despite bearish sentiments from some major players, the evidence points to a tightening nickel market with significant upside potential for prices and producers in the years ahead.

Analysts Vastly Underestimating Demand and Overestimating Surpluses

Mark Selby, CEO of Canada Nickel, recently shared some candid insights on the state of nickel market research and forecasting. His comments paint a concerning picture of flawed analysis and groupthink that is negatively impacting the industry.

Less than two weeks ago, BHP drastically lowered their nickel price assumptions and pushed back their timeline for market rebalancing in their half-year report. They cited the influx of nickel supply from Indonesia and widespread loss-making conditions for producers. Selby believes this assessment is misguided.

He points out that Wood Mackenzie, one of the main sources of commodity forecasts used by banks and consulting firms, has repeatedly underestimated Indonesian nickel supply growth. Selby argues these projects are being approved and delivered based on very different return parameters and assumptions than typical Western producers.

The result has been a surge of supply that has left the market vulnerable to demand disappointments. BHP believes demand will need to track at the high end of projections to justify this "breakneck expansion" and restore profitability in the next 3-5 years. If demand is more moderate, they see the market remaining oversupplied until the late 2020s.

On The Ground Research

However, Selby cites a recent analysis from Jim Lennon at Macquarie that suggests the surplus has been overstated. After on-the-ground research in China, Lennon concluded nickel demand has been understated by over 100,000 tonnes per year, while supply was overstated by 40-50,000 tonnes. He slashed his 2023 surplus forecast from 250,000 tonnes to 150,000 tonnes.

Even more telling, Lennon now sees just a 40,000-tonne surplus in 2024 - a mere 1% of global supply. He acknowledged that if Indonesian supply growth misses forecasts, the market could tip into deficit. Selby's own demand projections are even higher, setting the stage for a very tight market ahead.

So why do so many experts seem to be getting it wrong?

Selby breaks down how most commodity forecasts from banks and consulting firms rely on the same small handful of primary sources - Wood Mackenzie, CRU, Shanghai Metals Market, and groups like the International Nickel Study Group.

The banks take these forecasts, tweak them slightly, and present them as their own. So flawed analysis from these core providers ends up becoming consensus and driving decision-making across the industry. Selby accuses Wood Mackenzie of putting out "ludicrous" nickel demand forecasts in recent years.

For example, their Q4 2019 forecast projected nickel demand would reach 3.2 million tonnes by 2030. In reality, the market already hit that level in 2023 - 8 years ahead of schedule. They've drastically underestimated demand across key segments like stainless steel, batteries and more.

As a result, Selby urges investors and industry participants to take "expert" analysis with a big grain of salt, especially during periods of significant market shifts. He believes nickel's long-term demand growth will remain robust at 4-5% per year, with EVs driving even faster growth over the next decade.

Outdated and Overly Pessimistic Projects

This contrasts starkly with groups like BHP, who seem to be working off outdated and overly pessimistic projections. Selby cautions against relying on major mining companies as de facto nickel experts, citing numerous strategic missteps and missed market turns over the years.

Altogether, Selby paints a picture of a nickel market that is fundamentally healthier than mainstream analysis suggests. With demand surprising to the upside and much of the surplus potentially being tied up in "in-process inventory", the stage could be set for a strong price recovery in the coming years. Investors would be wise to dig deeper beyond consensus forecasts to understand the true dynamics at play.

Flawed Research Obscuring Market Realities

In a recent market outlook, mining giant BHP downgraded its nickel price assumptions and pushed back its timeline for market rebalancing to the end of the decade. Mark Selby, CEO of Canada Nickel, takes strong issue with this assessment, arguing it is based on flawed commodity research that is endemic in the industry.

Selby explains, "If you read commodity forecasts from various banks, people think these are experts. But the reality is, outside of copper and gold, the bulk of what they do is take either WoodMac or CRU forecasts, tweak the supply and demand numbers, and call it their forecast. If those core forecasts are flawed, then all this analysis is flawed."

He cites major firms projecting stainless steel nickel demand to shrink by 2030, while in reality demand has grown robustly, already hitting forecasted 2030 levels in 2022. "It's just ridiculous disconnect that we've seen over the last three months," Selby laments. This has real-world consequences, influencing capital allocation and causing undue pessimism for workers and communities.

Indonesia's Pivotal Role

Indonesia has emerged as the dominant player in the nickel market, controlling more comparable supply than OPEC did at its peak. The country's actions therefore have an outsized impact on nickel availability and prices. Notably, Indonesia has been slow to renew mining quotas for 2024 and looks to be keeping them flat versus 2022 for now.

"If you don't have extra ore coming from Indonesia, you're not going to have any additional supply versus where we were in 2023," Selby points out. "I think that's helped support the restock and the start of restocking that we've talked about."

While Indonesian officials have talked about targeting lower prices, Selby believes they are lowballing. He remains confident that nickel will get back to the low $20,000s per tonne, representing further upside from current levels around $18,000.

Demand Stronger Than Forecasted

On the demand side, major commodity firms have consistently underestimated nickel consumption growth. Selby shares how one analyst's recent trips to China revealed demand was underestimated by over 100,000 tonnes this past year alone. The surplus has been revised down dramatically from 250,000 tonnes to 150,000 tonnes for 2023. Some traders see it as low as 100,000 tonnes.

Looking ahead, that same analyst now projects only a 40,000 tonne surplus in 2023 - around 1% of the market. "If for some reason Indonesia falls a little bit short or in with my demand forecast on top of his supply forecast, we'll be in deficit this year," asserts Selby. This is a far cry from claims of persistent surpluses until 2030.

Canada Nickel's Exciting Growth

Amidst this constructive backdrop for nickel, Canada Nickel is rapidly advancing its 100%-owned Crawford nickel project in Ontario. The company recently announced a $35 million flow-through financing deal with Anglo American to accelerate exploration across its properties.

Selby outlines an ambitious plan to deliver maiden resources on seven separate deposits over the next 15 months, in addition to Crawford. The company is targeting a geophysical footprint ten times the size of Crawford's and believes it is truly "unlocking an entire nickel district" in the region.

Drill hit rates have been exceptional, with no failed holes since 2022. "We're quite confident in being able to deliver those resources and we're targeting potentially another six discoveries across the land package," says Selby. "Companies are lucky to have one project, maybe two projects. But we really are unlocking an entire nickel district here."

The nickel market appears to be on much stronger footing than some high-profile yet flawed research reports suggest. Indonesia's control of supply, combined with consistently underestimated demand growth, points to a tighter market and higher prices than bearish forecasters claim.

Canada Nickel is well-positioned to capitalize on this with its rapidly advancing Crawford project and aggressive regional exploration program. For investors, the long-term fundamentals of the nickel market look attractive, and Canada Nickel presents a compelling way to gain exposure to this opportunity. As always, investors should conduct their own due diligence and consider professional advice before making investment decisions.

The Investment Thesis for Nickel

• Nickel demand growth is consistently underestimated, while supply controlled by Indonesia
• Major players relying on flawed research, creating a disconnect between perception and reality
• Prices likely to appreciate back to $20,000+/tonne based on market fundamentals
• Canada Nickel rapidly advancing their Crawford project and unlocking new nickel district
• Consider gaining exposure to nickel's attractive long-term fundamentals via quality producers like Canada Nickel

The interview with Mark Selby sheds light on a major disconnect between market perceptions and realities in the nickel space. Flawed commodity research from influential firms is causing undue pessimism and leading to poor decision-making by companies, investors and other stakeholders.

However, Selby makes a compelling case that nickel market fundamentals remain very attractive. Demand continues to surprise to the upside, while supply is increasingly concentrated in Indonesia. The Asian nation looks to be keeping a lid on supply growth for now, which should be supportive of prices.

Selby's money quote summarizes the opportunity well: "If for some reason Indonesia falls a little bit short or in with my demand forecast on top of his supply forecast, we'll be in deficit this year. That's nuts!" This points to a market that is likely to be much tighter than many expect, with significant upside potential for nickel prices and producers in the coming years.