• ANZ predicts nickel supply surplus of 55,000t in 2023
  • Says supply response is emerging to rising price and growing demand from EVs after finishing 2022 at +US$30,000/t
  • Winsome raises $60m for lithium drilling as iron ore tanks materials sector

The green energy transition is widely recognised as the thematic to play, but it’s running headlong into issues stemming from the same environmental, social and governance concerns that have made renewables so popular in the first place.

While we need more copper, nickel, lithium and just about everything to power the growth of the electric vehicle and battery storage markets, scrutiny from governments, First Nations groups and community monitors is getting tighter and more intensive, blowing out approval timelines.

So we’ve seen plans to expand copper supply, thought to send the market into deficit last year as demand rolled off, falter amid environmental crackdowns, tax squabbles and political unrest in Chile, Peru and Panama.

New lithium mines are coming, but inflation, labour shortages and a lack of refining experience outside China are blowing out deadlines and budgets to deliver the crucial mineral to carmakers.

But in nickel, where footloose and fancy-free Indonesia is the pivot point for supply, we may be seeing the response expected at a time of near record prices.

LME grade nickel metal has been impacted by volatility and a lack of liquidity since the world’s biggest commodity warehouse saw prices soar on a massive, market confidence sapping short squeeze in March last year. But EV demand growth has still kept prices strong.

In fact, last year’s closing price of US$30,048/t was the second highest in history after the turn of the year in 2006-07.

In a new note, ANZ commodity strategists Daniel Hynes and Soni Kumari expect nickel supply to enter a 55,000t surplus in 2023, with downward pressure on prices to come if EV sales growth numbers disappoint.

“A tight nickel market and subsequent high prices have finally induced a supply response. That could lead to downward pressure on prices if the electric vehicle (EV) market fails to deliver on its lofty goals,” they said.

“Strong demand from both the stainless steel and EV sectors has supported prices over the past two years. With the EV revolution gaining pace, tightness in nickel used specifically in batteries has led to an explosion in nickel projects.

“Indonesia is gearing up to be an integral part of the battery supply chain. Ultimately, the use of laterite ore to feed the battery sector could bring about a structural change in the nickel market from this year.”


Where will that supply come from?

Hynes and Kumari see nickel prices falling to US$25,000/t by year’s end.

“We expect the global nickel market to move into a small surplus of 55kt in 2023. However, we see some upside risk to the surplus considering the incentive for additional supply to enter the market remains high,” they said.

“We have kept our demand forecast unchanged despite signs of slowing growth in EV sales.

“Even if supply tightness continues, we see nickel prices likely capped near USD30,000/t. However, our base case scenario is that prices will trend lower over the course of 2023 as fundamentals deteriorate.”


Where does the new supply come from?

Largely Indonesia, a traditional source of class 2 nickel pig iron, where stainless steel giant Tsingshan has led a push to convert NPI to nickel matte for refining into nickel sulphate for batteries.

Other miners are also using high pressure acid leach, historically used to create class 1 nickel from laterites but previously viewed as expensive with high capex bills, to create a mixed hydroxide intermediary product.

ANZ sees Indonesian feed for class 1 nickel to increase 12%, or 80,000t this year to 873,000t.

Canada and Australia are also growing production, with Canadian supply to rise 3.7% to 167,000tpa by 2027 according to industry research agency AME, and Australian output to grow from 154,000t in 2022 to 202,000t in 2024.

“Investment in nickel mining and processing is likely to increase further amid attractive profit margins. Current nickel prices around USD29,000/t are well above the production cost for all grades,” Hynes and Kumari said.

Whether this is enough to actually fill batterymaker order books remains to be seen.

RFC Ambrian last year estimated 0.7-1.1Mt of additional nickel supply would be needed for batteries by 2030 with demand for nickel in general to increase from 2.4Mt in 2020 to between 3.8-4.8Mt by 2030.

LME grade nickel for three-month delivery was paying US$29,296/t this morning.


Miners drop as iron ore falls

The materials sector is dominated by iron ore giants, so a 2% drop in iron ore prices (still above US$120/t) is always going to be a harbinger of doom. Materials was down 1.63% at 1pm AEDT.

Rio Tinto (ASX:RIO) fell 4.29%, with BHP (ASX:BHP) down 3.71% and Fortescue Metals Group (ASX:FMG) off 1.82%.

Gold miners also suffered the old post-bump reversal overnight, with gold prices supercharged by the rates news the previous day falling 1.8% to US$1917/oz on a stronger US dollar.

Meanwhile, there’s no shortage of cash floating around for lithium explorers, with Winsome Resources (ASX:WR1) winning some $60 million to continue drilling at its Cancet and Adina projects in Quebec.

You may remember Winsome as one of the many lithium names expecting a maiden resource in 2023.

Winsome, market cap of $320m, is up over 60% YTD.

The Canaccord-led placement will include $19 million at $4.18/sh (a 79% premium) through Canada’s flow through share scheme, with a $31m placement at $2 to institutional investors and a $10m share purchase plan at the same price for existing holders.

Taking about winning some.


Ground Breakers share price today: