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Message: Nickel Surges Higher As A Supply Squeeze Looms
By: Tim Treadgold
Nickel was hot last month when it comfortably outperformed a better-known metal, gold. It's even hotter today.
A 30% rise in the price of nickel in the two months to early August has morphed into a 50% rise over three months, more than three-times the 15.5% rise in the headline-grabbing increase in the price of gold.
The nickel-price rush from $5.40 a pound to $7.09/lb formed the basis of my last nickel story (Gold Is Hot But Nickel Is Hotter, August 11) with multiple drivers behind the rise at a time when trade-war jitters have been trimming the prices of most other commodities.
SOROWAKO, SOUTH SULAWESI, INDONESIA - 2019/03/30: A worker in a fire suit seen supervising the flow of hot liquid metal as it flows from a furnace at the plant. Production of matte nickel at the PT Vale nickel plant, in Sorowako, South sulawesi,
Over the past few days the nickel price has stormed up to a five-year high of $8.28/lb forcing investment banks to reconsider their previously cautious forecasts for the metal which is mainly used in the production of stainless steel, with increasing demand for its use in rechargeable batteries such as those used in electric cars (EVs).
The latest price rise of more than $1/lb since Friday is a mainly about fear of a supply squeeze magnifying the effects of strong demand for stainless steel in China as it boosts domestic construction in the face of the trade war while EV demand steadily accelerates.
Nickel Feeding Frenzy
What ignited a speculative nickel feeding frenzy were reports from Indonesia, a major nickel producer, that it would bring forward a ban on the export of unprocessed ore, potentially removing about 9% of global demand from the an already tight market.
The ban, which is designed to force miners to invest in value-adding processing, had been expected to start in the year 2022 but two wire services, Reuters and Bloomberg, have reported that the Mines Minister, Ignasius Jonan, wants the ban to start at the end of this year.
Analysts at Morgan Stanley said they expect Indonesia to produce 655,000 tons of nickel this year, about 27% of globally mined nickel, but 437,000 tons will not be effected by the ban because it is processed in the country.
SOROWAKO, SOUTH SULAWESI, INDONESIA - 2019/03/28: Heavy trucks seen working at the nickel mining area. Nickel mining by the PT Vale Indonesia, a nickel plant in Soroako, South Sulawesi, Indonesia. A number of economists and observers predict anLightRocket via Getty Images
"On our assumptions, this would leave 218,000 tons of Indonesia nickel contained in ore (9% of the globally mined supply) exposed to the ban," Morgan Stanley said.
"If this nickel ore would be left stranded, the 2.3 million ton nickel market would move into a substantial deficit."
The sudden change in the Indonesian Government's plans for a nickel export ban has left all investment banks scrambling to reassess their forecasts for the price of the metal.
Macquarie, an Australian investment bank, had been assuming a nickel price for this year of $5.61/lb, falling to $5.44/lb next year, well short of the latest price of $8.28/lb.
What the banks want to see is formal confirmation from the Indonesian Government that ban on the export of unprocessed ore is being brought forward and that it will become a permanent feature.
Previous attempts to enforce a ban have weakened and then been removed because of the damage done to exporters.
This time it might be different, in which case the nickel price could go a lot higher if there really is 9% of supply removed from a market already in deficit.
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