• China announced a 1 trillion RMB infrastructure spending package to stimulate its economy. This could support commodity prices.
• Nickel prices have held up reasonably well around $18,000/tonne. More downside is possible but Chinese stimulus could mark a bottom.
• Looking at battery demand in megawatt terms rather than just car units sold shows demand growth for nickel is stronger than perceived.
• The lithium market has seen huge short positions build up. This sets the stage for a potential short-covering rally in early 2024.
• Juniors like Regulus Resources, Sunrise Energy Metals and Alaska Energy Metals are still active despite tough markets.

China has announced a massive 1 trillion RMB (US$140 billion) infrastructure spending package, in a move that could help re-ignite commodity markets and boost economic growth. The spending comes at a time when China has been battling disinflationary trends, and many of its traditional stimulus tools have been less effective. For commodity investors, this bazooka-like fiscal stimulus in one of the world's largest commodity-consuming nations could mark a turning point after a prolonged bear market across metals, minerals and energy.

Nickel Market Poised to Benefit

Nickel prices have shown resilience in recent weeks, bouncing off $18,000/tonne despite rising London Metal Exchange (LME) inventories. Prices could still test down towards $17,500/tonne in the near term. However, China's infrastructure push is well-timed, as much of the bearish news is likely priced in. With Western interest rate hiking cycles also nearing their end, the risk-return outlook for nickel may be shifting from further downside to upside potential.

In particular, China's stated focus on infrastructure spending is constructive for nickel demand. Unlike last stimulus programs, this money cannot be used for new production capacity that could flood already oversupplied markets. More spending on construction and infrastructure should directly benefit industrial metals like nickel.

When combined with short covering by traders who maximized bearish positions over the past months, this Chinese stimulus could mark the long-awaited bottoming in nickel prices. Investors should watch for an inflection point over the coming weeks. Any short covering rallies could be sharp, with upside measured in thousands of dollars per tonne over days or weeks.

Measure EV Battery Demand in Megawatt Terms

In addition to direct infrastructure stimulus, China's shift can indirectly support demand for nickel used in electric vehicle (EV) batteries. Recently, nickel market analysis has focused too narrowly on the number of EVs sold, ignoring the vastly different battery sizes across vehicle segments and regions.

A better metric is to look at EV battery demand measured in megawatt (MW) terms. This adjusts for the large discrepancies between a modest 30 kilowatt-hour (kWh) battery used in a small Chinese EV, versus the 130 kWh battery packs commonly used in full-size North American pickups and SUVs. On a per-car basis, these larger vehicles account for 4-6x the nickel demand despite being one unit sold.

Under the megawatt lens, nickel demand growth appears far more robust. Nickel usage per megawatt of batteries installed has risen 11% year-over-year as auto markets shift towards North America and Europe. This strong per-unit growth compounds with surging demand for total megawatts of batteries. Investors can expect accelerating nickel demand over 2024-2025 as demand profiles change.

Shorts Leave Lithium Vulnerable to Short Covering

Like nickel, the lithium market could also be bottoming although prices may see one more leg lower first. The key indicator is that net short positions on the LME are now at extreme levels last seen during the 2015-2016 downturn when lithium prices bottomed near $4-5/lb.

With such huge short positions already priced in, the risk asymmetry for lithium appears skewed to further downside being limited. As the macro environment stabilizes on China stimulus and the end of Western rate hikes, short covering could ignite the next lithium rally. Any forced unwinding of these large bearish bets could push lithium prices higher by thousands of dollars per tonne rapidly.

Juniors Still Active Despite Tough Markets

Despite recent market weakness, promising junior mining companies are still actively exploring and developing new sources of battery metals supply.

One standout is Regulus Resources, which raised $22 million to continue drilling its large AntaKori copper-gold project in Peru. The financing success highlights that leading juniors can still access capital even in difficult markets. Investors recognize the quality of Regulus' asset base.

Other companies making strong technical progress include Sunrise Energy Metals, which completed a drilling program to expand nickel-cobalt resources at its Australian projects. In the United States, Alaska Energy Metals is drill testing nickel potential in Alaska and discovering promising grades.

With critical mineral security a top priority for US policymakers, drilling successes from juniors operating domestically could unlock new funding support. Investors should track these developments as a potential pipeline of future production projects if demand growth accelerates.

Conclusion: Bull Winds Gathering Strength

For battered nickel and lithium markets, as well as industrial metals broadly, the conditions are emerging for a macro-driven recovery rally. Much of the recent negative news appears fully priced in. China's forceful infrastructure stimulus, if replicated in other nations, could mark the long-awaited pivot point.

• China's infrastructure push can directly increase construction commodity demand.
• Short covering could drive violent near-term upswings as traders rush to unwind bearish positions.
• Megawatt demand metrics show robust nickel demand growth despite shrinking EV subsidies.
• Leading juniors continue advancing assets to be well-positioned to meet future supply shortfalls.

In summary, the latest policy shifts and fundamental trends argue that the commodity bear market is nearing its end. Investors should prepare portfolios as the winds appear to be turning more favorable for battered but unbroken metal markets.