Nickel & lithium:Nickel and lithium equities remain friendless....

Nickel & lithium:

Nickel and lithium equities remain friendless. But for how long?

Investors are waiting for a meaningful improvement in the price of the pair before dipping their toes back in the water.

It’s the usual short and near-term stuff to be expected when a commodity takes a price hit.

But big end users which have to plan for 20-year outcomes are acting very differently, often at the behest of their national governments.

Without secure and stable supply of ESG friendly metals like nickel and lithium (along with copper, uranium and a whole bunch of other metals) their industries are threatened by the new energy shift.

Look beyond the current price weakness in key metals for the new energy world, and supply has to increase many times over in the long run to meet the expected demand surge.

Equity investors can warm to that over time as incentive pricing takes over to encourage new supply. But for industry and governments, how to avoid shortages in supply in the long run is the key concern in the here and now.

It is against that backdrop that the big laterite development projects in WA have attracted European and Japanese support in the last year or so. It’s why Korean battery maker LG has stepped in to fill the void left by weak-at-the-knees banks at Liontown’s Kathleen Valley lithium project.

And it is why Japan’s Mitsubishi Corp is cosying up to Chalice and its Gooneville project, for the palladium as much as the nickel thanks to growing consumer preference for hybrid cars, and the doubt over supplies from the dominant producers Russia and South Africa.

Having said all that, the big unknown in the Aussie metals scene at the moment is whether BHP too takes a long-term view of where demand is headed, and what that will mean for incentive pricing, when it gets around to a decision of the future of its 80,000tpa Nickel West business next month.

Nickel West has been a loss maker in recent times but prices have improved. BHP is nevertheless on the record as saying the current surplus in nickel has a few years to run yet thanks to rampant Chinese-sponsored production growth in Indonesia.

A rationalised Nickel West better able to ride out the current downturn with government critical metal financing support would make sense. An each-way bet if you like.

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