Nickel markets may be chaotic, but long-term outlook very strong, analysts say

It's been a wild ride for nickel prices this month.

After soaring to almost US$22 a pound, the London Metals Exchange (LME) halted trading for several days March 8, outraging many investors.

A major reason the LME intervened was a major Chinese nickel producer stood to lose billions because it had bet prices would be lower. Investors sometimes try to protect themselves from volatile prices by betting prices will be lower in the future, a process known as short selling.

In this case, however, Russia's invasion of Ukraine spooked markets and prices soared. The difference between the expected price and the price March 8 was so great, Chinese nickel miner Tsingshan stood to lose as much as $8 billion.

When trading resumed several days later, the LME instituted limits on how much nickel prices could fluctuate. After dipping to $12.77, the price stood at $15.22 on March 30.

What does it all mean for places such as northern Ontario, where long-term demand for nickel to make batteries for electric vehicles is expected to drive economic growth?

Nikhil Shah, the London-based principal base metals analyst with CRU Group, said nickel supply has been tight for some time as demand for stainless steel recovers and demand from the electric vehicle market continues to grow.

"And then with the war in Ukraine, we saw prices move higher," Shah said.

Short-term, he said markets will likely remain chaotic because many investors are in the same position as Tsingshan.

"The main problem is that we would see continued volatility because there's still that large short position present in the marketplace," Shah said.

"In my 15 plus years (working in the industry), I mean, it's definitely unprecedented," he added, of the decision to suspend trading.

Longer-term, he expects prices will revert to more normal levels. But with Russia under heavy sanctions, and being the producer of nine per cent of global nickel production, Shah said prices will likely remain higher for the rest of 2022.

"I'm thinking that the price still will remain elevated in the second half of the year," he said.

That could dampen demand for elective vehicles, Shah said. Some manufacturers have already announced higher prices for EVs, with supply chain inflation also playing a role. Key will be the extent of government subsidies to offset those increases, he said, especially in Europe.

"But at the moment, it's definitely a negative for EV sales growth given the high pricing (of) battery materials," he said.

But that, too, is a short-term issue. Shah said more global production is coming online next year, which should turn the global deficit of nickel supply into a surplus.

"So essentially, we do see prices moving lower," he said, although strong global demand will keep the price healthy and "relatively stable."

'Green-commodity superpowers'

A recent article in The Economist magazine coined the term "green-commodity superpowers," a reference to countries that have an abundance of the seven metals needed to wean the world off fossil fuels. They include cobalt, copper, silver, lithium and, of course, nickel.

Demand for those metals is expected to grow sevenfold by 2030, according to the International Energy Agency.

Stan Sudol, owner of the website republicofmining.com, said Sudbury and northern Ontario are positioned to play a significant role in the global switch to electric from fossil fuels.

"Our mandate is trying to electrify the entire auto (sector) as fast as we can," Sudol said. "But the metals that we need for that are nickel, copper, cobalt, lithium."

Northern Ontario already has the metals the world needs, and the capacity to process them, he added. Events in Russia mean that a major source of the high-grade nickel needed for EV car batteries could be out of reach for some time.

With the whole world going electric, there's deep, long-term demand for the metals we have in the ground.

"It's not just the Chinese who are doing this -- it's the entire world who are needing to decarbonize their auto fleets and convert them to electric vehicles," Sudol said

"For the first time in a long, long time, northern Ontario is basically in the driver's seat because they're producing the valuable battery metals that we need."

He estimates there are about 100 million tonnes of ore still in the ground in the Sudbury area, with Vale and Glencore making long-term investments.

That includes Vale's US$7110 million Copper Cliff Mine Extension Project, and Glencore's US$700 million Onaping Depth Project, which will extend mine operations in the area to 2035 and beyond.

Sudol said steadily growing demand and investments from the mining giants likely mean mining will likely see a long cycle of sustained growth.

"If anything, I can say to the Sudbury Basin, fasten your seat belts," he said.