Nickel Rides the Rollercoaster as Demand Forecasts Collide With Economic Uncertainty

• Mark Selby, Chairman & CEO of Canada Nickel, catches us up on the latest in the battery metals space.
• Despite concerns about Chinese deflation news affecting the market, the demand for stainless steel remains strong due to its properties and recycling potential.
• Despite potential economic slowdowns, stainless steel is projected to see 5-6% demand growth annually. Nickel sulfate market for batteries in China has seen a surge, but production is shifting to Korea due to increased EV demand.

Nickel has earned a reputation as one of the most volatile metals traded on the London Metal Exchange (LME), with its price prone to wild swings in both directions. In 2022 alone, nickel prices went on a breathtaking rollercoaster ride, more than doubling in a matter of weeks before crashing back down when trading was halted. This type of price action keeps nickel traders glued to their screens.

Recently, nickel has continued on its volatile ways, whipsawing between bullish and bearish forces in the market. Demand forecasts remain strong in the long run, fueled by nickel's irreplaceable role in stainless steel and electric vehicle batteries. However, global economic headwinds persist, leading to metal price sell-offs. This push and pull dynamic has nickel bouncing around its trading range.

In this uncertain environment, nickel market participants are hanging on every data point and announcement that could provide clues on the metal's future direction. Exploration results, production decisions, policy moves and economic indicators are all being closely monitored. With so many variables at play, sentiment seems to shift day to day. But nickel’s high-flying past provides a clue that more heart-pounding volatility likely lies ahead.

Nickel Prices

Nickel prices have been on a rollercoaster in recent months, pulled between bullish demand forecasts and concerns over economic slowdowns. After dropping to the bottom of its $20,000-22,000 per tonne trading range, nickel continues to exhibit volatility.

The base metal complex as a whole slid lower last week as deflation fears in China reverberated through the markets. While nickel inventories on the LME remain low from a historical perspective, the metal’s price gyrations highlight the uncertain road ahead.

China Production Still Surging

Despite repeated predictions of an imminent slowdown, China continues ramping up production of nickel-intensive stainless steel. Statistics from the country’s iron and steel association show crude stainless output jumped 8.2% year-over-year in the first half of 2023, reaching 17.59 million tons.

The 300 series steels, which utilize nickel, accounted for over 50% of production at 8.85 million tons. This represents an 11.1% surge compared to the first half of 2022, confounding expectations of cooling in China’s real estate and construction sectors.

Analysts have routinely underestimated China’s stainless steel growth, and these latest figures suggest there is still underlying demand strength. With China dominating global nickel consumption, this signals ongoing hunger for the metal.

Western Production Cuts Reversing?

Earlier production cuts in the West after last year’s surge are now showing signs of reversal. Recent weeks saw announcements of production restarts and capacity increases from nickel producers in Europe and North America.

With nickel prices remaining relatively high, producers are taking advantage of favorable conditions to maximize output. This could hamper nickel’s supply deficit forecasted for 2023.

However, demand from the fast-growing electric vehicle (EV) battery sector is also ramping up dramatically. Major expansions of battery megafactories globally show nickel’s electrification narrative remains intact long-term.

Nickel Sulphate Momentum Stalls

One area not exhibiting strength is China’s nickel sulphate market. Used to produce cathode materials for EV batteries, nickel sulphate prices in China have edged lower recently.

However, more nickel is being directly utilized in the form of mixed hydroxide product (MHP) and nickel matte. South Korea in particular has been increasing its high-nickel cathode material output. While concerning in the near term, this still points to robust nickel usage further down the EV supply chain.

Company News

First Nations Opposition Clouds Outlook for Canadian Project

FPX Nickel’s stock plunged 33% last week on news that a First Nations group is opposing the company’s Baptiste Project in British Columbia. This highlights that strong community relations are crucial for mining projects to advance.

FPX has diligently sought to build partnerships with indigenous groups nearby its large nickel deposit. However, leadership changes can alter local sentiment towards resource development from one election to the next.

Investors must examine the specific region’s history with mining. Understanding if other operations are active nearby, or have existed previously, provides insight on local attitudes and potential permitting hurdles. Indigenous consultation will only grow in importance going forward.

Seabed Mining Venture Makes Headway

The Metals Company (TMC) has seen its stock rally after completing a $27 million financing round. The company aims to mine polymetallic nodules containing nickel, copper, cobalt and manganese from the Pacific Ocean floor.

By utilizing existing Japanese processing capacity, TMC plans a lower-capex production launch as early as late 2025. While seabed mining is still nascent and faces technological obstacles, TMC’s progress highlights commercialization efforts are accelerating.

Drill Results Build Excitement

In Nevada, Magna Mining released strong drill results from the Glitter Lake nickel project acquired last year. High-grade nickel and copper mineralization was intersected adjacent to past drilling.

However, the deposits remain early-stage and step-out holes are needed to demonstrate scale potential. Nearby in Ontario, Aston Bay Holdings is drilling 500 metre step-outs from its initial Boomerang resource. Such exploration success will be required to feed future project pipelines.

Lithium-Nickel Developments Continue

Seeking to capitalize on surging lithium demand, Widgie Nickel received approval to supply lithium ore from its Faraday deposit in Australia to an existing regional processor. This provides a fast production start.

Meanwhile, Azure Minerals rejected a $600 million takeover offer from lithium major SQM. The company is advancing a nickel project but pivoted to lithium exploration due to stronger market conditions. These stories showcase the magnetic pull of the lithium sector.

Nickel’s forecasted supply deficit relies on consistently strong demand growth. With China still exhibiting economic vigor but recession fears rising elsewhere, nickel’s path forward contains plenty of blind turns. Nonetheless, the electric vehicle transition continues accelerating, leaving long-term bulls confident nickel’s time will come.

Conclusion

Nickel’s split personality of late demonstrates the metal remains prone to overreacting to shifting market conditions and sentiment. One day production cuts signal prices are heading for the moon; the next, fears of economic strife point to new lows.

While nickel’s long-term narrative looks promising, especially from the electric vehicle transition, in the near term unpredictability reigns. There are simply too many forces pushing the metal in opposing directions.

Market participants will hold on tight as nickel takes them for a ride in its minecart of volatility. Another free-fall or price spike could occur at any moment. But nickel’s future should shine brightly, even if the road to get there is far from smooth. Traders should brace themselves for the thrills and spills ahead as nickel continues on its rollercoaster ways.

About Canada Nickel‍

Canada Nickel is emerging as a major player in the nickel mining sector through its 100% owned Crawford Nickel Sulphide project in Timmins, Ontario. Crawford is the largest nickel discovery since the 1970s and is located in an established mining jurisdiction with good infrastructure. Through over 20 transactions, Canada Nickel has also consolidated a vast regional land package 50 times larger than Crawford with 20 additional targets, demonstrating the potential for further substantial discoveries and resource growth. With its significant existing resource, low carbon production potential and exploration upside across its district-scale land holdings, Canada Nickel is well positioned to become a leading nickel producer.