Nickel is weaker than expected right now but it has a bright future – here’s why
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Nickel prices may remain weak for the next couple of years, but an increase in demand from battery makers makes the outlook extremely promising two to three years out.
This means junior nickel players heading towards production will be bringing their mines online at a time of rapidly rising demand.
In the past seven months the nickel price has retreated almost 26 per cent from its recent high of $US15,700 a tonne to around $US11,700 (see graph below).
“Prices have been weaker than we had expected over the past three to six months,” UBS mining equity analyst Daniel Morgan told Stockhead.
“There’s been fears of a global trade war, particularly from the United States and China where there’s been tariffs and other impositions made on trade, and the economic momentum globally looks like it’s peaked somewhat.
“Both of these things have seen people become more bearish towards the nickel market, which is very exposed to global growth.”
The biggest primary driver of nickel consumption right now is stainless steel — and forecasts for steel demand have softened.
There is also still an oversupply situation, with “reasonable” nickel inventories still needing to be used up.
“So for anyone buying nickel, there’s no reason as of this moment for them to be anxious about securing that supply,” Mr Morgan said.
“Electric vehicles, which is an extremely small part of the market right now, has not yet had an opportunity to become big enough to have really mattered in the short-term.
“I would say we’re more optimistic on a two-to-three year out view. We just need to bridge that gap and get inventories down and it’s just going to take some time.”
Market forecaster Roskill says the use of nickel in batteries has so far not exceeded 4 per cent of total nickel consumption.
In 2017, about 50,000 tonnes of nickel was used in batteries and only 15,000 tonnes of that went into electric vehicle batteries.
But demand predictions out to 2030 indicate there is going to be a big step change in demand for nickel used in batteries — driven by a global push by battery makers to use less cobalt and more nickel.
“Demand for nickel in lithium-ion batteries will soon make batteries the second-largest end-use application for nickel,” Roskill says.
Batteries with higher nickel content are cheaper and longer-lasting because they can store and produce more energy.
Less cobalt, more nickel
Roskill forecasts total, primary use of nickel in batteries will increase 10-fold to 2030.
UBS predicts that by 2025 the amount of nickel going into batteries will be about 700,000 tonnes.
“It’s a substantial lift,” Mr Morgan said.
“What we’ve been seeing is there’s a trend towards more nickel and less cobalt in battery cathodes, and so it’s not just EVs you are exposed to, you’ve also got a favourable mixed shift in our view where people are putting more nickel into each battery.”
China’s biggest lithium battery maker Contemporary Amperex Technology (CATL) right now makes batteries with 50 per cent nickel, 20 per cent cobalt and 30 per cent manganese.
But by next year CATL wants to be producing batteries with a chemistry make-up of 80 per cent nickel, 10 per cent cobalt and 10 per cent manganese.
CATL supplies batteries to electric car makers SAIC Motor Corp, Geely, BMW and Volkswagen.
Other manufacturers are following suit, with American car giant Tesla and Japanese battery giant Panasonic also making commitments to cut their use of cobalt.
Not all nickel is created equal
Nickel is usually found in two main ore types – sulphide or laterite.
Laterites are harder and more expensive to mine and process, whereas sulphides are much cheaper to turn into battery grade nickel sulphate and will fetch a premium price.
“For a lot of these products you never get down to a pure nickel form because it’s sort of a redundant step if you’re making stainless steel,” Mr Morgan explained.
“Another reason why EVs lead to a step change in market dynamics is because you need to have pure nickel. You can’t have iron amalgamated with it.
“You need nickel which then you process further into what’s called a nickel sulphate which becomes a battery product.”
St George Mining (ASX:SGQ) is one small cap that has its foot on some interesting nickel sulphide mineralisation at its Mount Alexander project near Leonora in Western Australia.
The explorer revealed earlier in November that drilling had delivered more thick intersections of massive nickel-copper sulphides at the Investigators prospect.
The latest drilling program is aimed at expanding the resource.
Cassini Resources (ASX:CZI), meanwhile, has already attracted interest from big Chinese battery makers.
In August, Xu Jinfu, the chairman and a major shareholder of Guangzhou Tinci Materials Technology — one of the largest lithium-ion battery electrolyte manufacturers in China — became a key cornerstone investor in Cassini.
The investment could potentially mean an off-take deal for the company’s West Musgrave nickel and copper project down the track.
TopTung (ASX:TTW) recently announced the acquisition of Australian explorer Zeus Minerals, which has two advanced nickel and copper sulphide projects in Quebec, Canada.
The company has successfully completed due diligence and now kicked off drilling at the Alotta project.
TopTung says the project areas contain a number of drill-proven high-grade massive sulphide mineralised zones intersected by shallow drilling, and also host a past-producing copper and nickel mine.
Nickel grades of as high as 6.2 per cent from 51.55m and copper grades of up to 20.53 per cent from just 25m were uncovered in historical shallow drilling.
Anything above 3 per cent nickel and 6 per cent copper is considered high-grade.
Fertile nickel jurisdiction
The Fraser Range in Western Australia has been quite a prolific area for big nickel finds — the key one being the Nova-Bollinger mine now owned by mid-tier miner Independence Group (ASX:IGO).
The discovery, which was made by Sirius Resources prior to its $1.8 billion merger with Independence, put the Fraser Range on the map as a nickel hot spot.
There has been some consolidation in the Fraser Range since the Nova-Bollinger deal, and Independence — which can produce battery-grade nickel sulphate — has been the key player.
There are only a couple of junior explorers left that haven’t already done deals.
Mark Creasy-backed Galileo Mining (ASX:GAL) recently uncovered a new target at the Empire Rose prospect.
Although shallow drilling did not return nickel grades considered economic, a geophysical survey indicated the possibility of sulphide mineralisation at depth, according to Galileo.
It is the first prospect Galileo has drilled at its Fraser Range project.
Legend Mining (ASX:LEG), meanwhile, also has a patch of nickel and copper-prospective land, called the Rockford project, in the Fraser Range.
The project is a partnership between Legend (70 per cent) and Mr Creasy (30 per cent).