Indonesia Crack Down on Nickel & Reduces Quotas Leaving Market 30% Short

• Nickel prices have retraced recently but are expected to trade in the $16,500-$17,500 range in the near-term before moving higher later this year
• Nickel sulfate and intermediate product prices are increasing and converging with the nickel price as shortages emerge, especially for battery-grade nickel
• Indonesia is managing nickel ore supply with quotas below last year's levels, keeping the market tight
• Premiums are emerging for clean, local nickel supply in North America and Europe as EV battery demand picks up
• Governments in the West are providing funding and support to develop local nickel projects and reduce reliance on China

Nickel: An Essential Metal for the EV Revolution

Nickel has emerged as a critical metal for the global transition to electric vehicles (EVs). As demand for nickel-rich lithium-ion batteries surges to power the growing fleet of EVs, the nickel market is undergoing significant changes. Investors have a compelling opportunity to gain exposure to this essential metal as the EV revolution accelerates.

Nickel Price Outlook

After surging over 15% earlier this year, nickel prices have retraced in recent weeks, giving up about two-thirds of the gains. However, this is typical behavior and prices are expected to consolidate in the $16,500-$17,500 per ton range in the near-term before moving higher later this year. Mark Selby, CEO of Canada Nickel and former nickel producer Inco executive, believes prices need to reach north of $22,000 per ton to incentivize enough new supply.

Nickel Shortages Emerging

A key factor supporting higher nickel prices is emerging shortages, especially for the battery-grade nickel sulfate required for EV batteries. Nickel sulfate prices have increased for 5-6 consecutive weeks and are now trading at a substantial premium to the LME nickel price for the first time in a long time. Intermediate products like mixed hydroxide precipitate (MHP) and nickel matte have also seen payabilities increase from 60-70% to over 80%.

Selby expects these products to reach 90% payabilities by the second half of 2023 as the "great convergence" in the nickel market plays out. On the other hand, demand from the stainless steel market, which accounts for two-thirds of nickel consumption, has been soft to start the year.

Indonesia Managing Supply

Another key driver is Indonesia, the world's largest nickel producer, managing nickel ore supply to the market. So far Indonesia has only issued export quotas for 153 million tons this year, well below the 190 million tons exported last year. The government is using the quota system to constrain supply and support prices.

of Selby estimates the market needs 210-220 million tons of nickel ore supply this year to meet demand, so there is still a sizable deficit. He expects Indonesia will release more quotas if prices move above $21,000-$22,000 per ton, but not if they remain at current levels around $16,650.

Premiums for Clean Nickel Supply

As demand for nickel in EV batteries increases, especially in North America and Europe, premiums are emerging for local, traceable, and low-carbon supply. There is already a premium for nickel products used in stainless steel in North America, and this is expected to widen for EV battery nickel as well. Very few new nickel projects are being developed in these regions, so those that are will benefit from these premiums.

Benchmark prices and futures contracts for "green" nickel are likely still 3-5 years away as the market develops sufficient demand, supply and trading activity to support them. In the meantime, data providers will start publishing "green" nickel prices to increase transparency.

Government Support for Nickel Projects

Governments in North America and Europe are keen to develop local EV battery supply chains and reduce reliance on China. Canada is a leader here, with a strong government presence at recent mining industry events and funding programs being rolled out in the second half of 2023. Permitting processes are also being streamlined to support new mines.

According to Selby, the political will and capital is there to make these investments happen, it will just take some time for the money to flow and projects to be built. He sees huge potential for North American nickel projects to displace Chinese supply and benefit from the government support.

The Investment Thesis for Nickel

• Nickel demand is growing rapidly due to increasing production of EVs with nickel-rich batteries
• Shortages of battery-grade nickel sulfate are pushing up prices and payabilities
• Indonesia is constraining ore exports to manage supply and support prices
• Premiums are emerging for local, clean nickel supply in North America and Europe
• Governments are providing funding and permitting support to develop new nickel projects
• Very few new nickel projects are being developed, supply deficits will likely emerge
• Nickel prices need to reach $22,000+ per ton to incentivize enough new supply
• Investors can gain exposure through nickel mining equities, ETFs, and futures

The nickel market is being transformed by surging demand from the EV revolution. Prices will likely move higher as shortages of battery-grade nickel emerge and Indonesia constrains supply. Premiums for clean, local supply are an added benefit for new nickel projects in North America and Europe. Government funding and permitting support reduce risks for investors. Overall, nickel equities and related products provide an attractive opportunity to gain exposure to a critical metal for the energy transition.