Why Nickel Prices Remain Rangebound Amid Mixed Signals

• Nickel prices trading in the range of 20,000 to 22,000, currently around 20,500.
• LME inventories remain low.
• Despite bearish news, strength seen in China's stainless steel market. China's economic concerns don't disrupt the overall nickel picture.
• Battery markets, particularly sulfates, showing limited movement. Expectation of a potential end-of-year rally for nickel prices. Nickel's various uses and value-added curve support strength in demand.
• Chinese stainless steel demand remains robust, indicating underlying strength.
• Company updates from Canada Nickel, SPC Nickel, Magna Mining & Chalice Mining.

Introduction

Nickel prices have traded in a narrow $20,000-22,000 per tonne range recently, despite some bearish news that could potentially pressure prices lower. According to mining executive Mark Selby, this resilience indicates an underlying strength in nickel demand.

In particular, Selby points to robust growth in China's stainless steel industry, which is a major consumer of nickel. Stainless steel production and prices in China are significantly higher year-over-year. This suggests healthy demand from sectors like construction and consumer goods manufacturing. With China still industrializing in many areas, this bodes well for continued nickel demand growth.

However, some headwinds remain for nickel prices. Demand from the electric vehicle battery sector has not rebounded significantly. Nickel sulfate prices, which directly impact battery producers, remain subdued. Selby believes EV sales growth through the rest of 2022 should restart the uptrend in battery metals pricing. Additionally, seasonal factors could support a typical year-end rally in nickel in November-December.

Overall, with supportive stainless steel demand trends in China balanced against weaker EV battery demand for now, nickel prices seem likely to remain rangebound until a clearer catalyst emerges.

Canadian Nickel Developers Continue Advancing Projects

With nickel prices holding up reasonably well, junior mining companies in Canada continue to make progress developing nickel projects. Selby highlighted updates from two firms:

• SPC Nickel reported strong drill results at its Sudbury Basin project, which it recently consolidated full ownership of from joint venture partner Wallbridge Mining. The drilling intersected attractive widths and grades that could support establishing a significant mineral resource. This asset may attract takeover interest from larger miners looking to bolster nickel resources, according to Selby.
• Magna Mining released a preliminary economic assessment (PEA) for its Shakespeare project, also located in the prolific Sudbury Basin. The Shakespeare and SPC Nickel deposits are not far apart, so industry consolidation between the two properties could occur.

These projects help position Canada as an important source of new nickel supply amid rising global demand. Along with major base metal mines already in production, like Vale's Sudbury operations, junior miners are expanding Canada's nickel sector footprint.

Canada Nickel Delineating District Potential

Canadian Nickel developer Canada Nickel remains focused on demonstrating the potential district-scale opportunity at its properties in the Timmins region of Ontario. The latest drill results from the Mann Northwest target identified mineralization across a 2.5-kilometer strike length. This adds to over 20 separate targets identified across the company's regional land package. Eleven of these targets have larger geophysical footprints than the flagship Crawford deposit, underscoring the immense district potential.

This wide scope provides substantial flexibility for Canada Nickel in advancing the most prospective assets and monetizing the value. The larger Crawford project naturally remains the priority focus for now. The release of a feasibility study in September will further quantify Crawford's economics and provide important insights into initial development plans and options.

Given the scale of the resource delineated at Crawford so far, Selby believes the market has not fully valued the asset. The current exploration work at earlier stage regional targets is aimed at establishing additional upside rather than expanding resources further at Crawford in the near term. Showing meaningful exploration upside could strengthen Canada Nickel's position in any potential M&A negotiations by highlighting the prospectivity across the district.

Proceed with Caution When Evaluating Preliminary Economic Assessments

The recent release of a PEA by Chalice Mining for its Gonneville nickel-copper-PGE project in Australia illustrates the need for caution in reviewing preliminary economic assessments. On the surface, the study highlighted impressive economic potential for the project. But Selby cautions that the underlying assumptions used to achieve the stellar numbers are highly aggressive based on current commodity prices and historical benchmarks.

In particular, the PEA used assumed long-term prices of $24,000/tonne for nickel, $11,000/tonne for copper, and $2,000/ounce for palladium. With nickel and copper currently trading 15-25% below those levels, and palladium nearly 40% lower, the project economics would be severely diminished at present values. Additionally, the proposed development capital costs seem very optimistic compared to benchmarks.

While PEAs serve an important purpose in beginning to evaluate potential project upside, investors need to scrutinize the underlying assumptions closely. Overly optimistic commodity prices or underestimated costs can distort the economic outcomes and give false hope. Selby advises focusing on established engineering firms with real project experience when assessing the credibility of PEAs.

Summary

Nickel prices have traded in a range between $20,000-22,000 per tonne recently, reflecting mixed signals on demand growth. While robust stainless steel demand is providing some price support, demand from the electric vehicle battery sector remains muted for now. Meanwhile, Canadian nickel developers continue to make progress advancing new resources and projects to take advantage of long-term demand growth forecasts. Canada Nickel in particular is demonstrating significant district-scale potential across multiple properties. However, caution is warranted in evaluating preliminary economic assessments for these early-stage projects, as aggressive assumptions may overstate actual potential. Overall, the nickel market appears to be in a holding pattern currently, but strong demand fundamentals and bullish long-term outlooks suggest prices could strengthen again once macroeconomic headwinds subside.