For those following the commodity sector, you would probably consider nickel an un-investible sector. Except, nickel has rallied hard this month. It’s clawed back a good portion of the territory lost during its price slide over the course of 2023. The outlook for this critical metal may not be as bearish as initially feared.
In March 2024, nickel rebounded for the first time since October 2023. In less than six months, it bounced up and hit a peak, indicating the formation of a floor and signaling the early makings of an upside formation. Overall, nickel is up by 15% since the start of the year, making it the third strongest performer after tin and copper.
Inaccurate Data Clouds Nickel Outlook
According to Jim Lennon, a 44-year mining veteran and nickel watcher, supply gluts could be well overblown. The claim is based on his recent visit to China, where he conducted an assessment that found nickel inventories are far lower than the reported figures and that internal demand in China is higher than stated. For these reasons, he believes the forecast of a nickel oversupply is incorrect.
“The price coming down was entirely legitimate because there was an oversupply. But I’m saying that the oversupply wasn’t as big,” Lennon said. “That means, moving forward, the market can correct a lot more quickly. It’s not as if there’s a mountain of inventory that’s got to be worked off before you get back into a balanced market.”
Market Behavior
It appears that not everything is what it seems in the nickel market. Despite the excess nickel available, it’s apparent the market is not fully satisfied. This is because Indonesia’s nickel is cheap and dirty. It will in no way support climate and net-zero goals. It is actually doing the opposite, which is impacting investor decision-making. This same scenario played out with cobalt. Once reflected in the market, the sector swung into large recovery gains.
Global Bottleneck
Concentrating supply into a single region makes the sector less responsive to rising demand and exposes the nickel market to sudden production cuts. It creates a bottleneck situation, slowing down efforts — in this case, those largely associated with the green transition.
To prevent a catastrophic slowdown, the US has been bold in encouraging consumers and automakers to use made-in-the-US materials. In fact, they’ve made this encouragement official by excluding Indonesian nickel from tax credits as part of their Inflation Reduction Act (IRA).
Mixed Behavior: Majors and Explorers
According to AFR, some nickel majors like BHP are working to simplify operations. Their mining operations, particularly in Australia, have been negatively impacted, and in response, they are scaling back to offset pressures.
Explorers like Alaska Energy Metals are pressing forward in support of the views of Jim Lennon, the IRA, and a near-future market change. Canada Nickel is also pressing forward with its operations at Crawford. For investors, a prime value opportunity could emerge, given that several nickel producers and explorers are currently trading at multi-year lows.
