Monsters of Rock: Can we count on another nickel rally in 2023?

Nickel prices have dropped more than 20% this year
CBA mining analyst Vivek Dhar says higher supply from Indonesia and China’s economic growth targets could count against another bull rally this year
Miners suffer bloodbath in miserable trading day

The nickel market has been one of the most fascinating in battery metals over the past year (and really it always is).

Small but prominent and with a base of Australian producers and explorers dating back to its discovery in Kambalda in the 1960s, the industry is important to the history of the Australian equity market (the modern exchange can be traced back to the wild speculation around the Poseidon Bubble) and to its future.

It saw massive gains last year, rising around 50% to its highest year-end price in 15 years at more than US$30,000/t.

But the heat has come off so far in 2023, with prices stalling, down over 23% to US$23,974/t yesterday.

Can we expect a rebound? On the plus side demand continues to rise from the energy transition. CBA mining expert Vivek Dhar said in a note today 11% of nickel demand is now linked to that dominating investment trend. Part of the cathode of NCM-chemistry lithium ion batteries, it’s a component that helps make an EV battery more energy dense – ergo, longer driving range.

That comes off a low base, with the metal traditionally used in the stainless steel production process.

As EV use and stationary storage rollouts rise, will we see prices return to growth territory?

Some developments in South East Asia mean a return to last year’s bull run (admittedly propelled by volatility following a short squeeze and liquidity crisis with price-setter the London Metals Exchange) could be less likely in 2023.

Indonesia ramping up class 1 supply

Much of this year’s price drop has been down to macroeconomic issues, a rising US dollar and fears that while pent up demand from China’s emergence from Covid will bolster demand in the first half of 2023, a lower than expected 5% economic growth target will dull hopes of a second-half boom.

China, according to Dhar, provides 55-60% of nickel demand.

At the same time, while there will be a “15-20%” growth in class 1 nickel demand in 2023, Indonesia’s investment in ramping up supply overall and in the battery market could eat into deficits.

“Class II nickel dominates current nickel supply, but Indonesia has led the recent charge to convert Class II nickel to Class I nickel,” Dhar said.

“Indonesia’s investment in both Class II and Class I nickel supply is likely going to result in a heavy surplus in Class II markets and a narrowing deficit in Class I markets.

“The Class I nickel market deficit forecast for this year mostly reflects the 15‑20% growth in Class I nickel demand.”

Battery chemistry in vehicles will also be a major focus for nickel producers, with cheaper nickel-free battery chemistries increasingly adopted in China.

“A notable trend that Class I nickel markets will have to contend with in coming years is an increasing share of the low cost and nickel-free Lithium Ferro Phosphate (LFP) battery chemistry,” Dhar said. “LFP batteries have lower energy density than those that contain nickel, but the energy density is sufficient for low-cost EVs.”

It is worth noting current prices offer good margins to most producers and remain well above the average of around US$18,500/t seen in 2021 and long term lows of US$7600/t in early 2016.

Nickel miners share prices today:

A day you’d rather forget about

Materials stocks were down around 1.8% at lunchtime.

They closed the day off 3.13%, with energy stocks off 3.36%, as the ASX 200 endured a bloodbath.

There was little to write home about among the large and mid caps, outside what was a slightly green run for gold miners as prices rose overnight.

They will be biting their nails nervously ahead of the jobs report due out of the US of A tonight.

Stronger-than-expected employment numbers would heighten risks of a larger, more severe and longer rate hike cycle, which would harm demand for bullion.