Priciest Base Metal Nickel Has Its Fortunes Tied To Electric Vehicles

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A global supply squeeze and laser sharp focus on electric vehicle batteries has transformed nickel into one of this year’s super commodity performers, with analysts seeing little fade in the fortunes of the shiny alloy-grade once best known for coin-minting and for providing stainless steel’s coating.

Priciest Base Metal Nickel Has Its Fortunes Tied To Electric Vehicles

Nickel Daily Chart

After a 16 percent loss in 2018 that saw it perform no better than most base metals, nickel is up 23 percent this year. That puts it at the second spot among commodities, just after lumber’s 28 percent gain (to see relative returns on all commodities, click here and go to performance).

Benchmark three-month nickel futures on the London Metal Exchange are hovering at five-month highs after Monday’s intraday peak of $13,255.00 a ton. Both technicals and fundamentals analysis point to greater chart action and industry potential.

A ‘Fully Justified’ Rally

Analysts at Bank of America Merrill Lynch said the rebound in nickel prices, from December’s 14-month lows of $10,632.50, was “fully justified”. In a post issued last week, they added:

“Fundamentals have held up, with LME stocks for instance declining every single month in the past year; similarly, physical premia suggest that nickel quotations at $12,500/oz ($5.67/lb) are fair value.”

“In contrast to the macro, structural risks to oil demand from electric vehicle proliferation appear skewed to the upside. EV batteries require a lot of metals, including nickel, lithium and cobalt.”

“In our view, the recent disconnect between prices and fundamentals was driven by a confluence of factors. But we see only upside risk to oil demand on battery supply”

A ‘Buy’ That Could Gain Another 4%

Investing.com has a “Buy” call on nickel on its daily technical outlook, with Level 3 Fibonacci resistance pegged at $13,702.50. At Monday’s settlement of 13,222.50, that would leave nickel room for another $480 gain—or near 4 percent.

BAML has a $15,695/ton forecast for nickel next year. But in order for that to happen, the Wall Street bank says demand from electric vehicles has to pick up and Indonesian output of the metal has to be controlled.

Participants in nickel have been apprehensive lately about Chinese steel giant Tsingshan Holding Group’s move to produce 50,000 tons per year of battery-grade nickel and cobalt in Indonesia.

Tsingshan, which includes lithium battery heavyweights Contemporary Amperex Technology and GEM, is already a major miner and processor of nickel ore, converting it to nickel pig iron (NPI) to feed its new stainless steel mill in the Morowali industrial park on the island of Sulawesi.

For the Indonesian initiative though, Tsingshan is using a different processing route, supplying the nickel and operating the first-stage processing to nickel hydroxide intermediates that can then be converted into nickel sulphate—the nickel form of choice for lithium-ion battery makers.

Indonesian Output Trouble Provides Another Wind

The so-called high-pressure-acid-leaching (HPAL) technology has a troubled history of operational problems and slow ramp-ups. Brazil’s Vale (NYSE:VALE) is still struggling with its Goro plant after six years of operation.

Speculation that the Tsingshan facility will not result in a major surge of battery-grade nickel supplies has been one reason for the metal’s rally.

Says BAML of the Tsingshan facility:

“While a memorandum of understanding has been signed for feedstock, recent dynamics suggest that the site is unlikely to deliver its first nickel units to the market in 2019/20. The facility could start up in 2019 and at a capex intensity of only $14,000/t, both a fraction of peer projects.”

While the Tsingshan plant remains under a cloud, demand for battery-grade nickel, especially from electric vehicle manufacturers, will continue although the metal’s uptake for stainless steel was patchy last year, BAML said. It added:

“Putting it all together, supply growth is too weak to flip the nickel market into surplus. At the same time continued uncertainty over Tsingshan could cap prices at $15,000/t ($6.80/lb).”

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