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Dear Fellow Investor,
While the mining sector abounds with discovery stories that provide a quick payout, there’s a place in most investors’ portfolios for buy-and-hold stories as well.
Such is the current state of the nickel market, which has had its ups and downs over the past few years. The product remains a mainstay of stainless-steel production, but its use as a battery metal promises to stoke demand as the EV trend begins to scale.
What follows is a brief look at nickel’s place among the battery metals and where it belongs in an overall portfolio of commodities plays, given the current state of the global economy.
Nickel Can Extend EV Range Per Charge
Nickel has been a mainstay of battery technology for some time, but its ability to deliver significant improvements in battery energy density will keep it in demand as a battery metal.
That’s because a key to convincing consumers to purchase electric vehicles is car companies’ ability to extend the range the vehicles can drive on a single charge. Batteries with higher nickel content can deliver the higher energy density and greater storage capacity to make that happen.
Right now, car companies are employing batteries with “532” content. That translates into 50% nickel, 30% cobalt and 20% manganese. To leverage nickel’s ability to extend the range of car batteries, battery manufacturers are experimenting with 811 technologies (80% nickel, 10% cobalt and 10% manganese).
The main hold-up is battery safety. As energy density increases, so does a battery’s tendency to fail. In a battery pack with enough cells to drive a car, that could translate into a potentially catastrophic vehicle fire.
The car companies are trying to balance performance with safety, and it’s not easy to do. The overall trend, though, is decidedly toward increasing the nickel content of EV batteries.
Cobalt’s Negatives Are Increasing Nickel Demand
That’s especially true because cobalt continues to be a bottleneck in battery production.
As covered in our Golden Opportunities report on cobalt, the majority of the world’s cobalt comes as a by-product of copper mines in the Democratic Republic of Congo. That country’s war-torn history makes it an unreliable supplier of that metal within a supply chain that demands certainty.
Equally important, the country’s reputation for employing child labor makes it a liability for car companies looking to protect their corporate, socially-responsible brands All things being equal, they would prefer to use batteries with minimal or no cobalt content.
Adding to cobalt’s negatives are its price — which at $14/lb is currently twice the cost of nickel. There’s clearly a financial incentive, as well, for battery manufacturers and car companies to gravitate toward batteries with higher nickel content.
Sulphide Nickel Deposits Are Hard To Come By
Currently, batteries account for about 4% of all nickel production. However, if the forecasts for EV adoption in the next 10 years prove accurate, that could spike to nearly 20% of annual production by 2029, according to Roskill.
That’s a problem, because nickel used in batteries requires the high-purity Class 1 nickel needed to make the nickel sulfate compound used in battery production. The silvery metal is a base metal, so it’s not inherently rare, but deposits that can spin off the kind of low-iron nickel used in batteries are hard to come by.
Most of the world’s Class 1 deposits of nickel have been discovered, and finding greenfield deposits is increasingly difficult.
The majors like Vale, BHP Billiton and Glencore that control the world’s major nickel-producing mines are capable of expansion, but if the EV boom takes off like analysts expect it to, the industry will be facing a deficit for the kind of nickel the car industry needs to feed that boom.
A Longer-Term Play On The Battery Metals Boom
Lithium and cobalt have both had their day as battery metals, and lithium, in particular, looks likely to continue to benefit from the EV revolution.
With 72% of nickel’s production still going toward stainless-steel production, it will take a while for increasing battery metal demand to have much of an impact on overall price of the metal.
Prices of nickel have been up and down over the last few years, and have trended higher in recent months, but are still trading near the low end of the metal’s long-term price range. That’s primarily due to China’s decision to begin generating stainless steel using nickel pig iron.
This low-grade form of the metal comes from laterite deposits that can’t economically produce nickel sulfate. As a result, there’s a bit of weight holding down the nickel price, as the primary use for the metal is being filled by a lower-grade (read: cheaper) product.
Prices will need to rise substantially to incentivize the exploration for and development of nickel sulphide deposits. Whether that happens in the near-term remains to be seen. One cloud looming over all of the base metals, though, is the ongoing trade war between the U.S. and China.
Trade Wars Cloud The Picture
With increasing signs of recession appearing on the horizon, the base metals have generally taken a hit. Those signs are made more urgent by the seemingly intractable trade negotiations between the world’s two largest economies.
Nickel has a lot to support its long-term supply-demand picture, particularly with regard to Class 1 nickel deposits. But it will suffer in the short-term if trade jitters spawn an actual recession.
Given the long-term supply/demand trends outlined here, however, there’s still a solid argument for building a portfolio of nickel projects. Right now the majority of those are coming from companies with projects focused on Australia. As such, many of these companies are Australian-listed and not necessarily suited for North American investors.
Vale and Glencore are the major nickel producers in Canada, but both are large, diversified companies, so they don’t make good pure-play bets on nickel. Names to look at include GigaMetals (GIGA.V) and FPX Nickel Corp. (FPX.V), which have extremely large, early-stage nickel projects that are highly leveraged to the price of the metal.
Regardless of which names you’ll settle on, the big-picture nature of the nickel story argues for a patient, value-investing strategy. A bet on nickel is a bet on the long-term, but seemingly inevitable, trend toward the electrification of the world’s transportation infrastructure.
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