Nickel price history - Nickel is recovering after a 5 year bear market.
Nickel supply and the top nickel producers.
Nickel demand and the impact of electric vehicles.
In this article I plan to take a look at the nickel sector and the impact of electric vehicle (EV) sales on the sector. My reasons are:
China construction is picking up, which will be supportive of nickel as it is used in stainless steel (65 percent of nickel used in the western world is used to produce stainless steel). The nickel price appears to be just coming out of a severe 5 year bear market, following in the footsteps of copper.
The electric vehicle boom and Tesla (NASDAQ:TSLA) Model 3 ramp up in late 2017 and 2018 may support nickel demand. Tesla's EVs use a NCA (nickel-cobalt-aluminum) chemistry which uses a cathode that is 80% nickel. Or as Elon Musk says about his lithium ion batteries - "they should be called nickel-graphite batteries".
Recently there has been nickel supply disruptions from the Philippines, and prior to that bans on Indonesian nickel ore exports (recently relaxed).
The table below gives a summary of my views on the critical metals in the lithium ion battery. My track record was good in picking both the lithium and cobalt booms in the very early stages as you can read here and here.
Column 1
Column 2
0
2016
Lithium boom
1
2017
Cobalt boom
2
2018[/B][/I]
? Nickel boom
3
2018-20
? Graphite boom
Given the above, I thought it is time to learn more about the nickel sector, then in my next article I will take a look at the main nickel producers, and to monitor the nickel price during 2017. After that I will write an article on my top 5 nickel miners. Nickel metal
Nickel is a silvery white metal that takes on a high polish. It is hard, malleable, ductile, somewhat ferromagnetic, and a fair conductor of heat and electricity. The USA 5-cent coin (whose nickname is "nickel") contains just 25% nickel. Source and source Nickel spot prices
5 year and 28 year nickel spot price graph - current spot price US$4.93/lb Source: InfoMine and *****
We can see from the above graphs that nickel has had a terrible past 5 years, mostly due to the China slowdown and less need for stainless steel. The 28 year graph also cautions investors that nickel has spent many years below US$5/lb, albeit we should adjust that for inflation. 2016 saw some price recovery as supply and demand came into balance due to a cut back in nickel supply combined with a pickup in demand. The London Metal Exchange (LME) graph above shows nickel inventory levels are still high, but they did decline in 2016.
Nickel supply and the main nickel producers -My preliminary nickel production table
NB: The above table is a work in progress. I am happy to get feedback on this to make it more up to date. A full list of nickel producing companies can be found here. Philippines mine closures
The Philippines is the world's number one nickel producing country with 500,000 tonnes of nickel produced in 2016. You can view an infographic here showing the top 10 nickel producing countries. In early 2017 the Philippines Government undertook an environment crackdown, resulting in the closure of 23 Philippine nickel mines, or around 50% of the Philippines supply, or about 10% of world supply. This has been partially offset by a partial lifting of bans on Indonesian nickel ore exports, which had previously been banned in 2014. It is looking possible that the Philippines may follow Indonesia's lead with talk of implementing a ban on unprocessed nickel ore. The idea is "to ban ore exports after three to five years and force miners to invest in local processing plants."
Nickel demand Stainless Steel
The most important factor for nickel demand is stainless steel demand, and China is the main driver. 2016 saw China construction recover after a 5 year bear market. As a result copper, nickel and steel prices all started to recover. It is hard to say if the China construction recovery will continue or not; however the massive "One Belt, One Road" initiative will definitely help urbanize Western Asia, which should be a net positive for the base metals such as copper and nickel.
Electric Vehicles
Glencore CEO Ivan Glasenberg said recently, "a shift of just 10 per cent of the global car fleet to electric vehicles would create demand for 400,000 tonnes of nickel, in a 2 million tonne market." Mining Weekly recently reported, "Glencore sees nickel shortage as electric vehicle demand burgeons."
My view is that nickel demand from EVs will really pick up once Tesla Model 3 kicks into serious production. Tesla uses NCA (nickel 80%, cobalt 15%, aluminum 5%) lithium ion batteries. Elon Musk recently stated: Our Model 3 program is on track to start limited vehicle production in July and to steadily ramp production to exceed 5,000 vehicles per week at some point in the fourth quarter and 10,000 vehicles per week at some point in 2018.
Of interest also is the energy storage boom that often uses NMC (nickel 33%, manganese 33%, cobalt 33%) lithium ion batteries. Given the above, I estimate the kick to nickel from EVs will be felt in 2018.
My EV battery raw materials model
I have been working on a model that looks at the impact of EV take- up (market share) on each of the key EV metals - so far my model covers lithium ((Li)), cobalt ((Co)), nickel ((Ni)), and graphite (C). The table below gives the conclusions.
Column 1
Column 2
Column 3
Column 4
Column 5
Column 6
0
2016
2017
2018
2019
2020
1
EV market share (of new sales)
0.85%
1.5%
2.5%
3.5%
5.0%
2
% lithium used by EVs of total Li demand
19%
26%
33%
38%
44%
3
% cobalt used by EVS of total Co demand
11%
17%
23%
28%
34%
4
% nickel used by EVS of total Ni demand
2%
3%
4%
5%
7%
5
% graphite used by EVS of total C demand
4%
5%
8%
10%
13%
NB: The above table assumes a 50kWh Li-ion battery that requires 40kg Li, 15kgs Co, 35kgs Ni, and 50kgs C. This will vary depending on an EVs battery chemistry.
Based on the table above, and other information, I draw the following conclusions:
Lithium - No 1 impact from EV growth on demand (19% increasing to 44% by 2020), unlikely to be substituted, lithium market currently in balance or slight deficit, slow but increasing supply response coming.
Cobalt - No 2 impact from EV growth on demand (11% increasing to 34% by 2020), possible to be substituted but unlikely due to increased power effect on the Li-ion battery, cobalt market currently in balance or slight deficit, slow supply response as cobalt is mostly mined as a bi-product of nickel or copper. Likely to head into a larger deficit.
Nickel - No 4 impact from EV growth on demand (2% increasing to 7% by 2020), possible to be substituted but unlikely in the near future, nickel market currently in balance or slight deficit but with large inventory, slow supply response as the nickel price is sensitive to the stainless steel (construction) industry. May head into deficit if stainless steel use and construction booms, or if supply disruptions continue.
Graphite - No 3 impact from EV growth on demand (4% increasing to 13% by 2020), possible to be substituted by silicon but unlikely for now, graphite market currently in balance, strong supply response as graphite is easy to mine and common. May head into a surplus.
From the above dot points, I conclude the best metals to boom from the EV boom are in order - lithium, cobalt (perhaps No 1 due to supply weakness), graphite and nickel. The main reason nickel is not so affected by EV growth is that the nickel market is already very large at around 2 million tonnes per annum, compared to the cobalt market at 133,000 tonnes per annum, lithium at 200,000 tonnes per annum, and graphite around 1.4 million tonnes per annum.
To invest in the nickel miners we need to see increased demand for stainless steel, a reduction of nickel inventories, which should help the nickel price rise. If we also get a surge in EVs then that is slightly positive for nickel. Given the nickel market has been very depressed the past 6 years, nickel miner stock prices are fairly attractive if nickel prices were to rise from here.
Conclusion
The nickel sector has been savaged the past 5 to 6 years with a severe bear market. The nickel price is showing some early signs of recovery. Meanwhile Chinese construction and global infrastructure are picking up which should be a strong tailwind for the sector. Add to this a surge in demand from EVs (especially after 2018), and from energy storage, and the nickel sector can take off. The supply side is always hard to forecast, but further Philippines and Indonesia supply disruptions will certainly help boost nickel prices.
In my next article I will take a closer look at the top nickel producing companies, in preparation for selecting a top 5 nickel companies, hopefully timing nicely with a 2018 nickel boom.
As usual all comments are welcome.
(20min delay)