Nickel: Supply Cuts and Underestimated Demand Growth Could Ignite 2024 Price Surge

• Nickel prices have fallen recently but are expected to rebound.
• Major nickel producers like BHP and Wyloo are cutting production which could help set a price floor.
• EV sales continue to grow steadily, driving nickel demand.
• Several nickel exploration companies have reported positive results.
• Nickel prices could return to $20,000 per tonne by the end of 2024 on resurgent demand.

Investing in Nickel: Demand Growth and Supply Cuts Position Nickel for a Price Rebound

Nickel prices have faced recent headwinds but appear positioned for a recovery in 2024. After peaking near $17,000 per tonne in mid-2023, prices retreated below $16,000 in recent months However, nickel market expert Mark Selby argues the price slide has driven “the capitulation which heralds a bottom". With major nickel operations suspending activity, supply cuts could coincide with surging demand to boost prices.

Supply Cuts Help Set a Floor

Selby suggests recent nickel mine closures represent “The kind of cuts that we just saw announced over the past week that in combination with the big surge in demand” could lift prices. Australian nickel projects have borne the brunt of closures, but this high-cost capacity exiting the market may support prices overall.

Wyloo purchased nickel producer Mincor in 2022 but recently put its mines on care and maintenance. These included Cassini, which produces 1.2 million tonnes of nickel at 3.3% grade annually. BHP subsequently announced it would idle its Kambalda concentrator which processes Mincor's ore. This effectively “cuts out a number of operations paths to market” according to Selby. BHP is also likely to write down the value of its nickel assets shortly based on recent performance.

First Quantum is suspending mining at its Ravensthorpe operation and will instead process lower-grade stockpiles. South32 is reviewing its 40-year old Cerro Matoso ferro-nickel mine. Selby suggests that “laterite deposits are relatively easy to high-grade”, so the declining economics likely reflects the mine's maturity.

While these developments appear negative, Selby believes “Majors tend to be behind the curve and the production cuts they announce end up helping create the bottom.” Removing higher-cost capacity paves the for remaining lower-cost production to be profitable at lower prices.

Demand Growth Outpacing Expectations

In contrast to challenged supply, nickel demand remains robust driven by electric vehicle adoption. Selby sees demand accelerating in 2024, noting “We're going to grow again another 30 40% this year so the potential for this massive restock is huge and it's going to kick into gear post-Chinese New Year”.

He highlights that “the big thing from a nickel consumption point of view” is trucks and large EVs in the U.S. market “and the US and is up 50% for the year, with the month of December up 42% year-over-year”. So while headlines suggested issues like Ford cutting F-150 production indicate faltering EV demand, Selby argues the full data shows otherwise.

“Global plug-in sales up November up 31% (total YTD up 38%)”. Robust sales growth will drive further destocking in the supply chain. Accelerating demand against slowing supply points to a pending nickel deficit. Selby sees prices potentially returning “back up to $20K by year-end” if his thesis holds.

The Investment Thesis for Nickel

Selby’s perspective suggests nickel presents a compelling contrarian investment opportunity. Cutbacks setting a price floor coupled with underestimated demand growth could spark a nickel price surge. Speculators should position in beaten-down equities ahead of the turn while longer-term investors can exploit an attractive entry point. Review development and exploration companies with promising nickel resources that can benefit from higher prices.

• Identify nickel exploration companies with evidence for large, high-grade resources that could become acquisition targets
• Seek nickel developers derisking projects that boast competitive positioning on the global cost curve
• Leverage optionality by ensuring adequate exposure to battery-related processing capabilities like sulphate and precursor production

Company Summaries

SPC Nickel (TSX-V: SPC)

• Completed initial resource estimate of 19 Mt at 0.42% nickel (0.57% nickel equivalent) for new greenfields discovery West Graham deposit
• Result confirms SPC's geological model and highlights resource expansion potential

Centaurus Metals (ASX: CTM)

• Brazilian authorities approved a critical Plan of Economic Assessment, bringing the Jaguar nickel project closer to receiving final permits
• Globally significant development project set to produce 20,000 tonnes of nickel per year

Talon Metals (TSX:TLO)

• Exploration at the Tamarack joint venture intercepted high-grade massive sulphides including 2.2 meters at 6.84% nickel and 3.80% copper
• Further evidence Tamarack could host world-class grades to underpin proposed mine development

Visionary Metals (TSX-V: VIZ)

• Drilling at the King Soloman project in Wyoming intersected 1.5 meters at 0.7% nickel confirming the presence of a nickel sulphide system
• Very early stage exploration play in the prospective region hosting geological similarities to major nickel belts

With nickel prices stabilizing near recent lows, speculative investors can position early to capitalize on an anticipated run higher across 2024. Nickel developers and explorers present asymmetric return profiles if the demand rebound thesis proves accurate. Majors constrained by short-term outlooks appear slow to respond, so those further down the value chain may offer more torque. Review nickel juniors boasting promising geology and grade to identify emerging stories that could excite markets. Prioritize political stability in safe jurisdictions when evaluating investment prospects.