Our Equities Trader, Joseph Raad, discusses macroeconomic themes for the month of June.
Nickel’s applications have long been far-reaching in a variety of spaces. Its outstanding physical and chemical properties make it essential in hundreds of thousands of products as nickel-based alloys are widely used in aviation, marine, chemical, electronics, medical and energy industries. Recently, however, its use as a battery metal has seen it become regarded as a significant element in the renewable energy phase.
The metal is a vital ingredient in the lithium-ion battery cells used in most electric vehicles sold globally. Older lithium-ion batteries typically used cathodes that consisted of one third nickel, yet recently, due to the commodities ability to effectively absorb energy, automakers have significantly increased the percentage of nickel in cathodes to boost energy density and vehicle range. Most now use cathodes that contain at least 60%, with some companies, such as Tesla cell supplier, LG Chem, consisting of up to 90% nickel.
The recent sanctions on Russia, coupled with the growing demand for nickel in the electric vehicle and stainless steel space, has left buyers scrambling for the metal. Furthermore, logistic issues in both Europe and China have shaken commodity markets, which has been evident through the rapidly growing prices of oil and gas. Russia, in 2021, was the third largest nickel producer globally, with the country accounting for approximately 15% of global production. Many expect supply chain issues to worsen or remain troubled due to further potential sanctions on Russia, resulting in fears of a supply crunch.
Australia is positioned well to capitalise on the forecasted deficit, being one of the world’s largest nickel producers. Australian Minister for Mines and Petroleum Minister, Bill Johnston, recently stated that “Western Australia is the world's fifth-biggest producer of nickel and is well placed to meet the strong global demand for nickel.” Furthermore, Nick Bell, Global Sector Lead, Resources at Worley has said, “Many of the new battery gigafactories currently under construction are now alert to the fact that they have reduced security of supply of raw materials and decreased ability to ensure that bought material has been responsibly produced.”
The World Bank’s Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition report predicted nearly 100% more nickel is needed to build renewable energy technologies, such as carbon capture storage, offshore wind, hydrogen infrastructure and EV batteries within the timeframe laid out in global political initiatives. The world’s nickel resources are currently estimated at almost 300 million tons, and Australia, Indonesia, South Africa, Russia and Canada account for more than 50% of this.
Nickel Stock Pick
Panoramic Resources (ASX: PAN)
Panoramic Resources Limited (ASX:PAN) is a base metal mining and exploration company headquartered in Perth, Western Australia with a 20 year history of mining and expertise in nickel, copper and cobalt sulphide projects.
Nickel Industries journey in Indonesia commenced in 2009 with its acquisition of an 80% interest in the Hengjaya Mine, from which nickel ore was exported until the Indonesian Government’s ban on the exportation of unprocessed minerals in January 2014.
Summary
With the Nickel price having already seen a drastic increase from recent levels, many are forecasting a continued steady rise, as professionals believe there has been significant under-investment in the sector, resulting in a very limited pipeline of new projects due to come on line in the near term. Greenfield nickel projects take on average 8-10 years to move from exploration through to production, and research from UBS estimates only 26 of 41 advanced stage nickel projects deliver 15% IRR at long term nickel price of US$20k/t. In saying this, Australia is positioned well to capitalise on forecasted nickel deficits.
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