Nickel's Critical Role: Supply Constraints & Government Support Reshape Investment Landscape

• The nickel price has rebounded to the $16,000-$16,500 per ton range after briefly dropping to $17,000.
• Exchange inventories are increasing slowly, indicating a small market surplus.
• Indonesian ore prices are rising, putting pressure on nickel pig iron producers.
• The US government is considering price support measures to encourage domestic critical minerals production.
• Canada Nickel Company announced initial resource results at its Deloro property and plans to release more regional exploration updates.

Introduction

The nickel market continues to evolve rapidly, with supply constraints, government initiatives, and macroeconomic factors all playing crucial roles in shaping the industry's future. This article provides an in-depth analysis of recent developments in the nickel sector, based on insights from Mark Selby, CEO of Canada Nickel Company. Selby explores the current price trends, supply-demand dynamics, geopolitical factors, and the growing importance of critical minerals in the global economy.

Battery Show with Mark Selby, CEO of Canada Nickel

Current Nickel Price Trends

The nickel market has experienced some volatility in recent weeks, but appears to be stabilizing within a familiar range. According to Selby:

"Since we last talked two weeks ago, we were flirting with the $17,000 a ton level, but we've now sort of bounced back into the range we've been in the last couple of months in the 16,000, 16,500 range."

This suggests that while there was a brief dip in prices, the market has found support at current levels.

The slight increase in exchange inventories over the spring and summer months indicates a small market surplus. However, Selby notes that this surplus is not as large as some analysts had predicted. He expects to see inventory levels increase by another 20,000 to 30,000 tons before the market reaches equilibrium.

Macroeconomic Concerns & Market Sentiment

The broader economic environment is creating some headwinds for the nickel market. Recession fears are growing, and equity markets have experienced significant volatility. This uncertainty is affecting sentiment across the commodities sector, including nickel.

Selby suggests that nickel prices may retest the $15,500 per ton level seen in February before potentially moving higher towards $20,000 per ton. He believes that prices will find support at current levels due to production costs:

"I think we may retest the $15,500 level that we had back in February one more time before we start to move higher towards $20,000 Again, I think we'll see nickel prices pretty well supported here because we are still deep deep deep into the cost curve."

Supply Dynamics: Indonesia & The Philippines

The supply side of the nickel market continues to be dominated by developments in Indonesia and the Philippines. Indonesian ore prices have been steadily increasing, rising by about a dollar per ton each week for the past two weeks. This price increase directly impacts the production costs of nickel pig iron (NPI) producers.

Importantly, Selby highlights that not only are ore prices rising, but the quality of the ore is declining. This combination of higher prices and lower grades is putting additional pressure on NPI producers.

Looking ahead, Selby identifies Philippine ore imports into Indonesia as a key metric to watch:

"I think the key thing to watch through the fall will be Philippine ore imports into Indonesia. Those have rocketed up through the year to see whether that continues."

The upcoming rainy season in the Philippines, which typically limits mining and shipping activities, could further constrain supply and potentially support higher nickel prices.

Demand Trends & Seasonal Factors

On the demand side, August is traditionally a slow month for the nickel market. However, Selby notes that September and October are typically stronger months for the Chinese battery supply chain. There are early signs of restocking activity in this sector, although the recent sell-off in lithium prices has made some buyers cautious. Selby observes:

"We're in a seasonal period of strength so we have seen a self weight prices tick up a little bit and seen even stainless prices, despite sort of the malaise on the demand side, see prices tick up there."

This suggests that seasonal factors could provide some support for nickel prices in the coming months.

Challenges for Exploration & Development Companies

The current market environment presents significant challenges for nickel exploration and development companies. Despite strong long-term fundamentals, many public companies in the sector are struggling to access capital. Selby acknowledges this disconnect, noting that conventional funding sources remain limited.

However, he sees some positive developments on the horizon. Strategic investments from major mining companies and battery manufacturers have provided some capital to the sector. Additionally, Selby observes growing interest from private equity firms:

"Starting to see some more active people in the private equity space. And so I think if you start to see some private equity transactions happen, if you start to see some more mining company transactions to start to pick up projects then that'll start to pull investors back into the space."

Government Initiatives & Critical Minerals

One of the most significant recent developments in the nickel market is the growing recognition of nickel and other metals as critical minerals by governments around the world. This shift in perspective is leading to new policy initiatives aimed at securing supply chains and encouraging domestic production.

Selby highlights recent news from the US government as particularly encouraging for the sector:

"The government is looking at basically price support in an effort to try and get more mines built in North America or within friendly ally countries - look at basically buying raw materials for a fixed price for a period of time to help get those projects into production."

These potential measures, which could include price supports, stockpiling, and other incentives, represent a significant change in government approach to the mining sector. Selby believes this could create substantial opportunities for companies with advanced projects:

"All of this effectively free capital that's available and then create assets that can last for 10-40 years. It should be a great trade."

The critical minerals narrative extends beyond just battery metals and electric vehicles. As Selby explains:

"Critical minerals is not just an EV or energy transition story. These are national security issues for many, many global governments who are terrified that China has a stranglehold on a bunch of materials that are needed to make a modern economy function."

Canada Nickel Updates

Turning to company-specific news, Selby provided an update on Canada Nickel Company's activities. The company recently announced initial resource results from its Deloro property, which is part of a broader regional exploration program. Selby indicates that the company expects to release results from six additional properties over the coming months.

Selby expressed optimism about the exploration program: "The results have been excellent. We're very excited about the kind of results we're getting. And again, good confirmation that our geophysical targeting is going quite well."

Government Support for Critical Projects

Selby also highlighted a recent development in British Columbia, Canada, where the provincial government has implemented a "concierge service" for critical mineral projects. This program aims to streamline permitting and regulatory processes for projects deemed essential to the critical minerals supply chain.

This type of targeted government support could become more common as jurisdictions seek to accelerate the development of domestic critical mineral supplies. Selby notes:

"I think you'll see more jurisdictions take this kind of approach. One of the issues when you announce a broad program is that they may get hundreds of applications for money. As you know, 90% of lot of stuff in the mining space isn't really going to turn into an actual mining operation."

Looking Ahead: Market Outlook & Investment Opportunities

As the nickel market navigates through current challenges and opportunities, several key themes emerge for investors to consider:

• Supply constraints: The combination of rising ore prices, declining ore grades, and potential disruptions from the Philippine rainy season could support higher nickel prices in the coming months.
• Demand recovery: Seasonal strength in the Chinese battery supply chain and potential restocking activities could provide a boost to nickel demand.
• Government support: Increasing recognition of nickel as a critical mineral is leading to new policy initiatives that could benefit companies with advanced projects in favorable jurisdictions.
• Exploration success: Companies with successful exploration programs, like Canada Nickel Company, may be well-positioned to take advantage of the growing demand for new nickel supplies.
• Investment landscape: While conventional funding remains challenging, strategic investments and growing interest from private equity could provide new capital sources for the sector.

Selby remains optimistic about the medium to long-term outlook for nickel, predicting that prices could return to the $20,000 per ton level by year-end. However, investors should remain aware of the potential for near-term volatility due to macroeconomic uncertainties and recession fears.As governments increasingly focus on securing critical mineral supply chains, companies with advanced projects in stable jurisdictions may find new opportunities for support and funding. This evolving landscape could create attractive investment opportunities for those able to identify well-positioned companies in the nickel sector.

The Investment Thesis for Nickel

• Supply constraints in Indonesia and the Philippines could support higher prices
• Growing recognition of nickel as a critical mineral is driving government support
• Seasonal demand strength and potential restocking could boost consumption
• Companies with advanced projects in stable jurisdictions may benefit from new government initiatives
• Exploration success in establishing new resources could create significant value
• Consider investing in well-funded companies with strong management teams and quality assets
• Look for companies that can benefit from government support programs for critical minerals
• Monitor developments in battery technology and electric vehicle adoption rates
• Be prepared for near-term volatility due to macroeconomic uncertainties
• Consider a mix of established producers and promising junior explorers for a balanced portfolio

The nickel market is at a critical juncture, balancing near-term challenges with long-term opportunities. Supply constraints from major producers like Indonesia and the Philippines are providing support for prices, while growing recognition of nickel as a critical mineral is driving unprecedented government interest and potential support. Companies with quality assets in stable jurisdictions, particularly those with advanced projects or exploration success, may be well-positioned to benefit from these trends. However, investors should remain cautious due to macroeconomic uncertainties and the inherent risks associated with mining exploration and development. As the global economy continues to evolve towards electrification and sustainable technologies, nickel is likely to play an increasingly important role, potentially creating significant opportunities for well-positioned companies and informed investors.