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Mining
Nickel has continued its run as one of the top performing commodities, as Russia ordered troops into the “Luhansk and Donetsk republics” in eastern Ukraine.
That’s what Vladimir Putin sees them as at least. The Ukraine Government and the western world definitely sees them as part of Ukraine, prompting the start of sanctions long thought likely as Russia’s neo-Soviet imperial ambitions emerged.
A trampoline for nickel, which hopped above US$25,000/t for the first time in 11 years.
The potential impact of sanctions on nickel is large.
Around 70% of the ~2.5Mt produced each year currently goes into stainless steel, which was in strong demand last year.
Russia produces between 6 and 11% of primary nickel metal depending on your source thanks to nickel giant Norilsk.
If you look at only the purer nickel products suitable for use in electric vehicle batteries, the growing slice of the nickel market which is driving demand higher and leading to serious stockpile draws, Russia produces around 17% of all “class 1” nickel, BloombergNEF estimates.
While nickel hasn’t been a specific focus of sanctions yet, Commbank analyst Vivek Dhar said in a note this morning concerns were growing that further escalation could see more severe restrictions, including on Russian nickel supply.
Rising nickel supply from Indonesia, which sells nickel pig iron to Chinese stainless steel produces in a highly coordinated supply chain was expected to eclipse demand growth in 2022 and 2023, Dhar said.
“That should see nickel prices retreat due to growing surplus conditions in nickel markets,” he said.
Hits to Russian nickel supply are a clear risk to those expectations however.
“The race to supply nickel to the rapidly expanding EV battery sector also looms over the nickel market and could see nickel prices continue to remain elevated,” Dhar said.
“While Tsingshan has managed to produce a low‑cost nickel product in Indonesia suitable for the EV battery market from low‑grade nickel ore, it’s unclear whether the process will proliferate given the process has high carbon intensity.
“Nickel’s role in providing a low‑carbon future will likely increase scrutiny that nickel production limits carbon emissions.”
Dhar said high pressure acid leach projects using low grade nickel could dominate class 1 supply, but faced traditional challenges with operating costs and capital overruns.
Stocks reliant on industrial growth like iron ore miners were hit hard as Russia dominated the news cycle, with the materials index copping a 4.07% whack.
BHP (ASX:BHP) went ex-dividend as well, dropping 6.5%, to compound weakness among other ASX-listed mining giants like FMG (ASX:FMG) (down 3.31%) and Rio Tinto (ASX:RIO) (down 3.49%).
BHP has an outsized – and slightly controversial – impact on the ASX 200 since the unification of its Australian and British companies.
That has seen the whole of its $240 million market cap placed in the Aussie domiciled company, giving it an ~11% share of the total value of the benchmark Australia stock index.
Nickel miners were muted despite positive price movements but a handful of gold revelled in the chaos, as gold and silver prices rose on the cracks emerging in global harmony.
African gold miner Perseus (ASX:PRU), which delivered a 159% rise in net profit yesterday to $126.9m, was the biggest winner gaining 11%.
As far as company earnings go OceanaGold (ASX:OGC) continued its turn around delivering US$100 million in underlying NPAT in 2021 after losing US$18m in 2020, beating consensus by US$64m.
Resolute Mining (ASX:RSG) results will do little to reverse the 60% dive seen in the West African gold stock’s shares over the past 12 months after posting a $367.5m loss including a $227.5m impairment.
It expects gold production at its Syama and Mako mines to increase by around 30,000oz to 345,000oz in 2022.
Meanwhile rising mineral sands prices drove Iluka Resources (ASX:ILU) to a 108% increase in underlying NPAT from $151m in 2020 to $315m in 2021.
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