Rising Iron Ore Price Signalling Underlying Chinese Economy Driving Nickel & Copper Prices

• Nickel prices recently rose to nearly $20,000/ton, about 7 months earlier than expected, and are now consolidating in the $18-20K range
• Inventory drawdowns and speculative positioning suggest the nickel market is tightening; prices could fluctuate but the overall trend is bullish
• Copper prices have also risen substantially, with major producers up 75-100% in the past 5-6 months; copper may consolidate but the long-term outlook remains positive
• The International Nickel Study Group revised their nickel surplus forecast lower for 2023 and 2024; the actual market is likely balanced or in deficit when disruptions and stronger demand are considered
• Several junior nickel companies reported positive project updates, including permitting progress, strong metallurgical results, and a major joint venture deal

For investors seeking exposure to the electric vehicle and renewable energy transitions, nickel warrants strong consideration as a key battery metal poised for robust demand growth in the coming years. In a recent interview, nickel expert Mark Selby provided an insightful overview of the latest developments in the nickel market and shared his outlook for prices and equities in the sector.

Nickel Price Action

Selby noted that nickel prices recently staged an impressive rally, surging to nearly $20,000 per metric ton - about seven months ahead of his prior expectations. Although prices have subsequently consolidated to around $18,600, this still represents a gain of $3,000 from the lows. Selby views the current price action as a normal consolidation phase within a larger bullish trend.

One key factor supporting nickel prices has been the drawdown in London Metal Exchange inventories, which dropped to the mid-70,000 ton level before bouncing modestly to the high-70,000s. Selby pointed out that speculative positioning has shifted from a record net short position back in January to a small net long currently, indicating that the market is more balanced.

Looking ahead, Selby expects nickel to trade between $18,000 to $20,000 until there are clearer signs that physical demand is continuing to pick up. He sees the rising iron ore price as a positive signal that the underlying Chinese economy is improving.

Battery Show, with Mark Selby

The Copper-Nickel Connection

Selby also commented on the strong performance of copper, another critical metal for electrification. He noted that several months ago, key market signals were "flashing bright green" and suggested it was a good time to invest in copper equities. Major mid-tier copper producers have since risen 75-100%.

With copper now pushing $10,000 per ton, Selby advises investors to consider taking some profits, as the same bullish signals from before are now "flashing red." He expects copper to consolidate in a $9,000 to $10,000 range for the time being. Nevertheless, the world will need more copper projects to meet long-term demand, so investors may want to position in earlier-stage copper names.

Nickel Market Outlook

Turning to the latest projections from the International Nickel Study Group (INSG), Selby found reasons for optimism. The group revised their expected surpluses for 2023 and 2024 lower to just over 100,000 tons. However, the INSG's methodology has some limitations.

Importantly, the INSG forecasts do not include an allowance for supply disruptions. Selby estimates that a typical disruption allowance of 3-5% would actually put the market in balance or deficit for 2023. Furthermore, the INSG assumes 8% demand growth next year, whereas Selby expects double-digit increases as the EV and energy storage markets accelerate. The combination of these factors points to a solid deficit for nickel in 2024.

Company News

Magna Mining

Magna Mining, a nickel exploration company focused on projects in Ontario, Canada, recently achieved a significant milestone by securing key water permits for its flagship mine. These permits allow Magna to proceed with dewatering old mine workings and advance its exploration drilling program. The company aims to capitalize on the growing demand for nickel driven by the electric vehicle and renewable energy storage industries. With a management team experienced in nickel exploration and development, Magna is well-positioned to unlock the potential of its assets. As the company progresses through exploration and towards potential production, investors may find Magna Mining an attractive opportunity to gain exposure to the nickel market.

FPX Nickel

FPX Nickel, a Vancouver-based nickel exploration and development company, recently announced strong results from pilot plant testing of material from its flagship Baptiste deposit located in central British Columbia. The test work confirmed robust metallurgical performance, validating the company's proposed flowsheet and providing a solid foundation for further project advancement. FPX's Baptiste deposit is one of the world's largest undeveloped nickel deposits, with the potential to become a significant low-cost, large-scale producer. As the company continues to derisk the project through ongoing technical studies and permitting, FPX Nickel presents a compelling investment case for those seeking exposure to the growing nickel market and the transition to a low-carbon economy.

Ardea Resources

Ardea Resources, an Australian nickel exploration and development company, recently entered into a significant earn-in agreement with Japan's Sumitomo Metal Mining and Mitsubishi for its Kambalda nickel project in Western Australia. The partnership will see the Japanese companies invest nearly US$100 million to earn up to a 50% stake in the project, providing a strong endorsement of the project's potential. The Kambalda region is a well-established nickel mining district, and Ardea's project benefits from existing infrastructure and a proven geological setting. With the backing of major international partners and the proceeds from the earn-in agreement, Ardea Resources is well-funded to advance the Kambalda project through exploration and development. This deal positions Ardea as an attractive investment opportunity for those looking to benefit from the growing demand for nickel in the electric vehicle and battery storage markets.

Queensland Pacific Metals

Queensland Pacific Metals (QPM), an Australian company previously focused on developing a nickel refining project using a novel processing technology, recently made a significant strategic shift. The company announced that it would shelve its nickel project and instead pivot its focus to natural gas production. This decision was likely influenced by the challenges associated with bringing new, unproven technologies to market and the need to generate cash flow. While the move away from nickel may disappoint some investors, QPM's management appears to be taking a pragmatic approach to creating value for shareholders. The company's gas assets could provide a more stable revenue stream and potentially fund future growth initiatives. Investors should monitor QPM's progress in its new direction and evaluate the company based on its ability to execute its revised strategy.

The Investment Thesis for Nickel

• Nickel demand from EVs and renewable energy storage is set to grow at a double-digit pace in the coming years
• Supply growth is likely to undershoot expectations due to disruptions and the long lead times for new nickel projects
• The risk/reward balance for nickel is skewed to the upside after the recent price correction
• Investors can gain exposure through producers, developers or explorers, depending on risk tolerance
• Favor companies with proven management teams, attractive economics, and a clear path to production
• Monitor key price drivers including LME inventories, speculative positioning, Chinese demand signals, and Indonesian export policies

The nickel market appears well-positioned for a rally as rising demand from the EV sector outpaces supply in the coming years. While near-term price volatility is likely, the strategic importance of securing reliable nickel supplies should support higher long-term prices. Investors can capitalize on this opportunity by carefully selecting nickel equities with strong fundamentals and experienced management teams. As with any commodity investment, ongoing due diligence and attention to evolving market dynamics will be essential.