Tim Treadgold: With stockpiles shrinking as demand grows, nickel is Macquarie’s clear winner for the next five years
Nickel is the clear winner in a three-stage minerals and metals “beauty parade”, scoring top marks as an investment over the next 12-months, 24-months, and a shared second place in the five-year category with its battery cousins, lithium and cobalt.
Interestingly, lithium and cobalt are not expected to join nickel as short-term winners because the current glut of material is overwhelming the market for electric cars which received a fresh setback this week when China cut subsidies for battery-powered vehicles.
The metallic parade is the work of Macquarie Bank which regularly looks at the full basket of minerals and metals as part of an exercise in separating winners from losers over the short, medium and longer term.
While not a stock-specific exercise the bank’s commodity selection is a potentially useful guide of where to position the speculative portion of an investment portfolio – and, more importantly, where not to because the risks might be unacceptably high.
The two biggest losers over the next few years, according to Macquarie, are palladium and metallurgical (steel-making) coal, with their negative outlook largely a function of strong recent price rises triggering a supply rush which is coming to an end, taking prices down.
It’s a very different picture for nickel, a metal which has largely been consumed in the production of stainless steel but which has just acquired an important new market as a key ingredient in long-life batteries.
According to Macquarie the addition of battery demand is a key factor in it forecasting a 20% rise in the nickel price over the next 12-months to around $US15,000 a tonne, and then up again to $US17,000/t in 2021 – and all the way to $US20,110 in 2024.
Major increases in nickel production are underway, led by the process known as Nickel Pig Iron, which is a specialty of Indonesia and the Philippines. But there should be enough demand to go around which is why Mincor, a company which mothballed its mines in WA several years ago, is dusting off re-opening plans, and why BHP is reinvesting in nickel after attempting to sell out.
Macquarie reckons a deficit in global nickel production has seen stockpiles shrink from 22 weeks of supply in 2016 to 11.6 weeks today, with the shrinking trend to continue, reaching 8.7 weeks in 2021.
“The amount of nickel used per battery could more than double over the next five-to-seven years,” Macquarie said.
“For car-makers to realise their goals, nickel supply growth over the next 10 years will basically need to outperform any growth cycle in nickel’s history.”
Gold and silver are rated second best in the short-term section of the bank’s preferred commodity list, with platinum rated third-best over the next 12 months, gold and silver thanks to the neutral (to falling) interest rate position of the US central bank as well as emerging risks to global growth and inflation, and platinum thanks to car makers swapping away from high-priced palladium.
The price of gold, according to Macquarie, is expected to reached $US1400 an ounce by the end of the year, up eight per cent on the recently reduced price of around $US1293/oz. Silver is heading for $US17.25/oz by this time next year, up 13 per cent on its latest price.
Platinum, which is already starting to benefit from the switch away from palladium, is expected to rise by 13 per cent this year to around $US920/oz at the end of 2020, and then up to $US1250 by 2023.
Macquarie’s tips for best metals in the mid-range of two years sees nickel remain on top, followed by platinum and copper which is expected to benefit from steady demand and limited supply growth.
Over the next two years the copper price is forecast to rise by 17 per cent to around $US7300 a tonne.
The five-year winners, and anyone tipping commodity prices five years into the future is courageous, are: uranium, thanks to China’s re-embrace of nuclear power, the battery triplets (nickel, lithium and cobalt), and copper.
Useful as those predictions are from Macquarie in perhaps helping position speculative investments on the winning side of the ledger, it is just as important to know where not to be, and the metals voted least likely to succeed in the short term (next 12 months) are cobalt and lithium, followed by manganese and coal.
In the longer term (five years), the losers are likely to be coal, steel and palladium, along with a rare precious metal, rhodium.
A snapshot of a few more metals close to the wallets of Australian investors includes these comments from the bank: