Nickel Rebalances as China's 2nd Largest Steel & Ferronickel Company Declares Bankruptcy

• Nickel prices have rebounded by 7%, reaching $16,500 per ton or $7.50 per pound.
• Indonesia is considering creating its own metals exchange to manage nickel pricing.
• Currency fluctuations have made nickel prices attractive in Canadian and Australian dollars.
• FPX Nickel and Canada Nickel Company are making progress on their respective projects.
• Life Cycle Assessment (LCA) results show potential improvements in nickel recovery and economics.

The Case for Investing in Nickel

Nickel, a versatile metal with applications ranging from stainless steel production to advanced battery technologies, has generated significant investor interest. As the global economy shifts towards cleaner energy solutions and electric vehicles, nickel's role in these technologies has become increasingly crucial. This article examines the current state of the nickel market, recent developments in key producing countries, and the progress of notable nickel mining companies to provide investors with a comprehensive overview of the investment potential in this strategic metal.

Current Market Dynamics

Recent market trends indicate a potential stabilization and upward movement in nickel prices. A nickel market expert, Mark Selby of Canada Nickel, notes that prices have rebounded by 7%, reaching $16,500 per ton or $7.50 per pound. This recovery follows a period of price compression and suggests that the market may be forming a bottom, potentially setting the stage for further growth.

The "Great Compression" & Market Rebalancing

Selby describes a phenomenon he calls the "great compression," affecting the nickel market for the past 18-24 months. This compression was characterized by significant discounts on intermediate nickel products due to insufficient conversion capacity to transform laterite ore into high-grade (Class 1) nickel products. However, recent market movements suggest that this situation is beginning to resolve itself:

• Nickel pig iron discounts have narrowed by 25% in just two weeks.
• Nickel sulfate is trading at a small premium again.
• Stainless steel inventories have declined, with prices showing a slight uptick.

These indicators point to a rebalancing market, with the bottleneck shifting from processing capacity to ore availability, a more typical and sustainable market structure.

Indonesia's Growing Influence

Indonesia, a major player in the global nickel market, is taking steps to assert greater control over nickel pricing. The Indonesian Nickel Minerals Association plans to create an Indonesian Metals Exchange by 2025. This move aims to decouple Indonesian nickel prices from the London Metal Exchange (LME) fluctuations, allowing for more localized price determination. This development underscores Indonesia's strategy to maximize revenue from its substantial nickel resources.

As Selby points out:

"Indonesia wants to manage or maximize the revenue from this limited resource."

While Indonesia possesses significant nickel deposits, the country recognizes the finite nature of these resources and is keen to optimize their economic value. The Indonesian approach differs from China's historical strategy in commodity markets. While China often focuses on providing cheap raw materials to support its value-added manufacturing sector, Indonesia is prioritizing the profitability of its mining and processing operations. This stance is evident in the country's shift from being an economic "basket case" with trade deficits to achieving trade surpluses, largely on nickel and stainless steel exports.

Delong – 2nd largest Chinese NPI and stainless producer, declared bankruptcy in the last two weeks.  It had been struggling for a while – again, a good indication that these prices are at a bottom and well-supported at these levels

Impact on Global Supply & Pricing

Contrary to concerns about Indonesia's oversupply flooding the market, recent events suggest a more controlled approach to production. The bankruptcy declaration of Tsingshan, the second-largest Chinese nickel pig iron producer with significant operations in Indonesia, indicates that even major players are not immune to market pressures. This development challenges the notion that state-backed Chinese companies will continue production at any cost, potentially creating opportunities for Western companies to compete more effectively in the global nickel market.

Currency Effects & Regional Competitiveness

An often overlooked factor in the nickel market is the impact of currency fluctuations on pricing. Despite headlines suggesting low nickel prices, when viewed in Canadian or Australian dollars, current prices are at their highest levels since 2011, excluding the past two years. This currency effect creates favorable conditions for nickel producers in these countries, potentially stimulating increased supply from these regions.

Selby emphasizes this point:

"Nickel prices right now, other than the last two years, are higher than they've been since 2011... As a Canadian-based miner who will have all of their operating costs in Canadian dollars, it's tremendous."

Developments in Key Nickel Projects

Several nickel mining companies are making significant progress in developing their projects, which could have important implications for future nickel supply:

FPX Nickel

FPX Nickel is advancing towards a feasibility study for its project. Recent announcements highlight:

• Improvements to the project's production profile
• Reductions in operating costs
• Implementation of trolley systems to reduce carbon footprint

These developments, particularly focusing on reducing carbon emissions through electrification, align well with the growing demand for sustainably produced nickel in the battery supply chain.

Lifezone Metals

Lifezone Metals is developing the Kabanga mine, which is described as the highest-grade undeveloped nickel resource globally. The company is also exploring refinery options to convert concentrate into finished products. While the project shows promise, it faces challenges due to its location and the historically mixed results of hydrometallurgical processing in nickel production.

Canada Nickel Company

Canada Nickel Company, despite being a relatively young company, is making rapid progress on its Crawford project:

• Recent metallurgical testing on the East Zone produced a 60% nickel sulfide concentrate, potentially the highest grade ever achieved in such tests.
• Additional tests showed a 28% improvement in recovery compared to the feasibility study model, suggesting potential economic upside.
• The company has identified a new PGM (Platinum Group Metals) zone, which could add value to the project by allowing the processing of material previously considered waste.

These developments highlight the ongoing potential for optimization and value creation in nickel projects, even in advanced stages of development.Environmental Considerations and Sustainable ProductionThe nickel industry is increasingly focusing on reducing its environmental footprint, a crucial factor for investors considering the growing emphasis on ESG (Environmental, Social, and Governance) criteria. Projects like FPX Nickel's and Canada Nickel's Crawford project are incorporating design elements to minimize carbon emissions, such as trolley systems for electric trucks and utilizing low-carbon electricity grids.This focus on sustainable production will likely become a key differentiator in the nickel market, particularly as demand from the electric vehicle and renewable energy sectors continues to grow. Investors should consider the potential long-term advantages of projects with strong environmental credentials.

Future Outlook and Price Projections

While short-term price movements can be volatile, the nickel market's underlying fundamentals appear to be strengthening. Selby forecasts $20,000 per ton by year-end, reflecting confidence in the market's recovery and long-term growth potential.

The combination of rebounding demand from traditional sectors like stainless steel, coupled with growing requirements from the battery industry, is expected to support nickel prices in the coming years. However, investors should remain aware of potential challenges, including:

• Geopolitical risks, particularly related to Indonesia's growing influence in the market
• Technological developments in battery chemistry that could impact nickel demand
• The success or failure of new processing technologies in efficiently producing battery-grade nickel

The nickel market shows signs of stabilization and potential growth, driven by a combination of factors, including supply rationalization, growing demand from emerging technologies, and strategic moves by key producing countries. For investors, the current market dynamics present an opportunity to gain exposure to a metal that plays a crucial role in both traditional industries and the green energy transition. While challenges remain, the progress made by companies like FPX Nickel, Lifezone Metals, and Canada Nickel Company demonstrates the ongoing innovation and optimization in the sector. As the global economy continues to evolve towards more sustainable technologies, nickel will likely remain a critical component, potentially offering attractive long-term investment prospects for those willing to navigate the complexities of this dynamic market.

The Investment Thesis for Nickel

• Supply-Demand Dynamics: Growing demand from EV batteries and traditional sectors and controlled supply growth support long-term price strength.
• Green Energy Transition: Nickel's crucial role in batteries positions it as a key beneficiary of the global shift towards electrification and renewable energy.
• Geopolitical Factors: Indonesia's moves to control pricing could lead to more stable and potentially higher nickel prices.
• Currency Advantages: Favorable exchange rates for Canadian and Australian producers enhance their competitiveness and profitability.
• Technological Advancements: Ongoing improvements in mining and processing efficiencies enhance project economics.
• ESG Considerations: Focus on low-carbon nickel production aligns with investor preferences for sustainable investments.

Actionable Advice

• Consider exposure to nickel through a diversified portfolio of mining stocks, focusing on companies with advanced projects and strong ESG credentials.
• Monitor developments in Indonesian nickel policies, as these could significantly impact global supply and pricing.
• Pay attention to advancements in battery technology that could affect nickel demand in the EV sector.
• Evaluate the carbon footprint of nickel producers, as this may become a key differentiator in the market.
• Keep an eye on currency movements, particularly for Canadian and Australian nickel projects.

The nickel market shows signs of stabilization and potential growth, driven by supply rationalization, increasing demand from traditional and emerging sectors, and strategic moves by key producing countries like Indonesia. While challenges remain, including geopolitical risks and technological uncertainties, the metal's critical role in the green energy transition presents significant long-term investment potential. When evaluating opportunities in this sector, investors should consider nickel's strategic importance, the progress of key mining projects, and the growing emphasis on sustainable production. As the global economy continues shifting towards cleaner technologies, nickel will likely remain a crucial component, offering potentially attractive prospects for informed investors.