Nickel - Why This Critical Metal Is Compelling Investment

• Nickel prices have risen 16% in the past month to over $18,000/ton, driven by battery restocking and short position covering
• EV sales are up over 30% year-over-year globally in February, ahead of most analyst forecasts
• Indonesia is looking to manage nickel supply and prices, with aspirations of an OPEC-style organization
• Some new nickel projects are in development, but many higher-cost operations are challenged even at current prices
• Government support increasing for nickel projects outside China to secure supply chains

The Case for Investing in Nickel

Nickel has emerged as a critical metal in the global transition to electric vehicles and renewable energy. With nickel prices rebounding and demand poised to soar from the EV revolution, the investment case for nickel is compelling. This article will examine the key drivers behind the nickel market and highlight some promising investment opportunities.

Nickel Price Recovery Underway

After a challenging period, nickel prices have staged an impressive recovery, rising 16% in just the past month to over $18,200 per ton. Mark Selby, a nickel industry expert, notes this rebound has been driven by two key factors: battery supply chain restocking and short position covering.

Record short positions of 150,000 tons of nickel that had accumulated by late January have been slashed by nearly half. Selby explains, "There's still some positioning that could help push prices further." This short-covering rally indicates the negative sentiment that weighed on nickel has sharply reversed.

The other major catalyst has been battery makers replenishing nickel inventories after destocking last year when prices of nickel and other battery metals like lithium plunged. With EV demand rebounding, battery producers are scrambling to restock.

Nickel sulfate prices in China, a key material for batteries, jumped 3% in a single week. "Very clearly the restocking is underway," affirms Selby.

The Latest Battery Show, with Mark Selby, Nickel Industry Expert

EV Sales Accelerating Faster than Expected

The most important long-term driver of nickel demand is the electrification of transportation. Despite pessimism from some analysts, global electric vehicle sales are exceeding expectations. Per research firm Rho Motion, worldwide EV sales surged over 30% year-over-year in February across all major markets.

Selby points out these growth rates are "way ahead of where most analysts have that going in terms of factoring the stuff into their final metal demand." As EV adoption outpaces forecasts, demand for nickel is likely to surprise to the upside as well. Sustained higher nickel prices will be needed to incentivize new supply to meet this demand.

Indonesia Asserting Control of Nickel Supply

While demand soars, supply constraints are also supporting higher nickel prices. Indonesia, which controls more of the nickel market than OPEC does of oil, is taking steps to manage production and prices. The country is limiting export quotas and openly discussing forming an OPEC-style organization for nickel.

Indonesian officials have even mentioned a price target of around $18,000 - right where nickel is trading currently. However, many Indonesian operations have costs of $11,000-15,000/ton, so the country has an incentive to keep prices elevated.

"It's a great place to be if you have a dominant supplier who's X thousand a ton ahead of you on the cost curve, who's determined to manage prices up above what their costs are," explains Selby.

Nickel assets in stable jurisdictions with much lower costs are well-positioned to thrive with this backstop from Indonesia.

Challenges for New Supply

While demand soars and Indonesia props up prices, much of the nickel industry still faces challenges in bringing on new production. BHP's nickel operations in Western Australia are in the highest cost quartile globally. Nickel projects there have large upfront capital costs and long timelines in an expensive operating jurisdiction.

In contrast, Selby is bullish on projects in places like Canada with large, low-cost sulfide deposits that can be mined for decades. He argues, "Government's going to help us with the equity check to get them built...there are assets like the ones we have in Canada that can be set up to be multi-decade significant free cash flow machines.

Investment Opportunities Emerging

As the nickel market dynamics shift in a favorable direction, investors should consider gaining exposure. In addition to major producers, some junior miners are advancing promising new projects:

• Wyloo Metals has outlined a resource of 5Mt at 1.5% nickel at its Western Australia project, with a scoping study showing potential for 10ktpa nickel production over a 6 year mine life.
• Premium Nickel Resources is expanding the resource at its Botswana project, with recent drill results including 18m at 2% nickel equivalent

While it's still early days, these types of projects could develop into appealing investment opportunities as the nickel market evolves.

The Investment Thesis for Nickel

• Nickel demand is poised to significantly outperform expectations, driven by accelerating global EV adoption
• Prices are recovering due to demand from battery restocking and short covering, with further upside possible
• Indonesia is moving to support nickel prices at attractive levels for most producers, putting a floor under the market
• Challenges remain for new nickel supply, with many high-cost operations struggling even at current prices
• Low-cost, long-life sulfide nickel projects in stable jurisdictions offer an attractive investment opportunity
• Consider gaining exposure to nickel through major producers or emerging junior miners with appealing project economics

The investment thesis for nickel is rapidly strengthening. Demand is exceeding expectations from the EV revolution, while supply faces constraints. Indonesia is propping up prices at levels incentivizing new production, but much of the industry still faces challenges at current levels.

Low-cost operations, particularly sulfide deposits in stable jurisdictions, appear best positioned to benefit from this market setup. Investors can gain exposure through major nickel producers or consider junior miners advancing promising projects. As the EV megatrend accelerates, nickel demand should continue to surprise to the upside, offering a compelling opportunity.