Nickel Supply Tightness Ensures a Pivotal Year for Investors

• Nickel prices did not drop as sharply in early 2023 as expected due to destocking in the EV supply chain from high lithium prices.
• Demand growth remained strong in 2023 despite economic headwinds. Total nickel demand grew 9% annually from 2020-2023.
• Supply growth continues to rely on Indonesia in 2023 while several other operations face challenges.
• Restocking and growing EV demand, especially in North America, is expected to drive double-digit demand growth in 2024.
• Supply and demand dynamics point to potential nickel market deficits emerging by late 2024.

The nickel market enters 2024 facing pivotal dynamics after demand growth remained resilient through a turbulent 2023, defying expectations for a plunge back below $20,000/tonne. While lithium price declines triggered destocking that capped nickel consumption growth from the electric vehicle (EV) battery supply chain near 4% last year, underlying demand drivers stayed robust with total nickel demand rising 9% annually from 2020-2022, according to nickel market analyst Mark Selby.

With supply growth still centered on Indonesia as several other global mines face cutbacks or closures, the stage appears set for the nickel market to fall into deficit by late 2024. That prospect, along with expectations for further inventory restocking and booming EV demand, points to a potential breakout year for nickel prices.

Lithium Price Decline Prompts Destocking, Slows Growth

"What happened during these two years in 2021 2022, there was a massive...massive inventory build as lithium prices were going up 10x," explained Selby. "People were stockpiling...materials throughout the supply chain and then as lithium prices came down they de-stocked."

That de-stocking along the EV battery supply chain meant consumption of nickel in batteries inched up less than 4% last year. However, Selby emphasized that underlying drivers like EV sales and nickel intensity remain strong. EV sales growth likely landed between 30-40% in 2023, while nickel use per vehicle increased by around 6-8%.

"This means that the underlying demand for nickel from the battery sector was up 40%," Selby said. When that re-stocking cycle resumes, "you can get a pretty violent move up" in prices.

Booming North American EV Sales Changing Market

Regionally, surging EV uptake in North America appears poised to shake up global nickel demand patterns. Selby noted that the continent's share of total nickel consumption from batteries is set to triple over the next six to seven years.

Late 2023 saw Asian battery maker Samsung take a stake in Canadian nickel developer Canada Nickel, aiming to secure supply to feed booming regional battery production. Selby said such deals underscore that even with Indonesia dominating new mine supply, more regional sources are still needed.

“This is why Samsung wants some Nickel in North America because...the growth plans that these companies have is very very significant,” he explained.

Strategic Investments Validate Scalability and Commercial Viability of Bulk Tonnage Nickel Projects

Asian strategic investors taking stakes in Canadian nickel developers FPX Nickel and Canada Nickel is an important endorsement of the potential for large-scale, low-grade nickel sulphide deposits to help meet rapidly rising battery demand. It also signals that despite Indonesia's dominance of new nickel supply, Korean and Japanese battery makers likely recognize they will still require additional sources, including from North America, to feed their ambitious production growth plans.

The involvement of major Asian commodities players like Sumitomo Metal Mining and Samsung validates the technical and economic potential of these bulk tonnage, lower-grade nickel projects at a commercial scale. These industry leaders have determined that such deposits can viably produce the volumes of nickel sulphates needed for electrolytes and cathode precursors for several decades. Their investments indicate that Indonesia may not be able to supply enough Class 1 nickel over the long term to satisfy regional demand as Asian EV battery manufacturing scales up dramatically.

Seeing well-established Asian commodities firms and battery makers investing substantial capital to secure future North American nickel production capacity should help provide confidence to global institutional investors and fund managers. It demonstrates that industry leaders are willing to deploy meaningful capital because they believe in the commercial viability of these projects to deliver low-carbon and responsibly sourced nickel to meet their strategic requirements. Their involvement signals expert endorsement that these assets can deliver outsized long-term upside as the energy transition accelerates. This should prompt more investors to recognize the enormous potential being unlocked in nickel.

The binding agreement represents industry leaders' conviction that major new sources of supply must be developed to complement Indonesian nickel in feeding the EV revolution. Their investments validating the economics of large, scalable nickel deposits could prove a pivotal catalyst in drawing mainstream institutional capital into this strategic energy transition space.

Supply Growth Still Centers on Indonesia

On the supply side, Indonesia has accounted for over 100% of global nickel production growth since 2015. That trend continued last year and appears set to persist through 2023. Selby expects the country will begin flexing its control of export quotas more actively by the latter part of 2024 to prevent oversupplying the market.

"They want to spook...the $10 or $20 billion of HPal investment that they're going to get over the next 2 years, but you'll see them start to manage that supply to the market," he said.

Mine depletion issues may also start impacting Indonesian laterite output more noticeably by the end of 2024. First Quantum's Ravensthorpe nickel operation in Australia closed this January due to ore reserve depletion, and Selby sees up to three more global mines potentially following suit this year. No new projects are ready to pick up the slack in the near term.

The Investment Thesis for Nickel

• Indonesian export policy changes could constrain supply growth more in 2024, tightening the market balance.
• Supply disruptions appear more likely from several depleted mines closing while new projects remain scarce.
• Restocking of EV supply chain inventories could unleash significant latent demand.
• Accelerating EV uptake makes baseline 9% annual nickel demand growth a conservatively low estimate.
• Surging nickel demand against constrained supply points to market deficits emerging in late 2024.
• Resulting price increases likely needed to incentivise long-term investment in new mining capacity.

Key Takeaways

While temporary factors slowed nickel demand growth in 2023, underlying drivers remain robust led by surging EV uptake globally and especially across North America. With existing mines facing depletion issues, Indonesia taking a more active role in export quotas, and restocking set to resume, demand appears poised to outpace supply growth and tilt the market balance towards deficit by late 2024. The resulting price increases will likely be required to support investment in expensive, long-lead-time nickel projects needed to meet rapidly rising consumption over the rest of the decade.

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. Samsung, Agnico Eagle and AngloAmerican are also shareholders.