Nickel primed for another price bounce amid fears of Russian nickel ban

Nickel is unlikely to soon test its all-time high of US$50,000 a tonne reached earlier this year when a Chinese billionaire was caught in a spectacular short squeeze, but there are early signs of conditions developing which point to a price bounce.

The major issues with nickel are reliability and quality of supply, with both stoking a slow-burning fire under a metal once used mainly in the production of stainless steel but increasingly as an ingredient in batteries.

A pointer to nickel getting ready for its next price break-out event is its status as the only base metal to be selling today for a higher price than 12-months ago.

Copper, zinc and aluminium, other members of the base metal family, have all declined since last October.

Another reason why investors should keep an eye on nickel is that the world’s two biggest mining companies, BHP (ASX: BHP) and Rio Tinto (ASX: RIO), have singled it out as one of their preferred metals for future growth – as has the iron ore billionaire turned green energy enthusiast, Andrew Forrest.

All of those issues got an airing at the annual Australian Nickel Conference held in Perth this week; though, the immediate price moving event could be a re-run of the Russian nickel crisis which saw Xiang Guangda, also known as “Mr Big Shot”, almost wiped out in the March short squeeze, which also came close to destroying the London Metal Exchange (LME).

Saving Xiang

Back then it was fear of a ban on Russian nickel, which represents 20% of global supply, which saw the price rocket from US$23,000/t before the invasion of Ukraine to US$50,000/t (with some futures contracts hitting US$100,000/t) when the LME halted trading and cancelled all nickel transactions.

That move, which is now the subject of multiple legal challenges by investors who lost money, was a key in saving Xiang, the man behind the world’s biggest nickel producer, Tsingshan Holdings, from bankruptcy.

The exact size of Xiang’s short exposure has never been revealed but is reported to have been around U$10 billion, owed to some of the world’s biggest banks.

Saving Xiang avoided what has been described as a possible “Lehmann Brothers moment,” for the metals industry, a reference to the collapse of the New York bank which triggered the 2008 global financial crisis.

Russian metal bans in pipeline

Today, nickel is again facing a Russian challenge, along with another metal in which the country is a major producer, aluminium, and once again it is the LME which is at the centre of what’s brewing.

Last week, the LME confirmed that it had prepared a discussion paper for its members about how to deal with Russian metal what can still be freely traded despite multiple bans on other Russian raw material exports.

Proposals being debated inside the LME include a ban on new Russian metal while allowing material already in LME warehouses to be traded, down to a do nothing option

The problem with the do nothing option is that it would expose the LME to an accusation of favouring Russian metal producers such as Norilsk Nickel and Rusal, a big aluminium producer, because the exchange itself is owned by Hong Kong Exchange and Clearing which falls under the ultimate control of China, Russia’s best friend.

LME trades in the spotlight

Layered on top of that heady mix is the increased interest of the US in what’s traded on the LME, especially after Rio Tinto chief executive officer Jakob Stausholm complained that the free flow of Russian aluminium was hurting the US market.

“It’s actually very difficult to have a profitable aluminium industry in North America at this point in time because Russian aluminium is flowing in,” Mr Stausholm said.

“Right now, we have the lowest aluminium price this year and you would have thought the Russian-Ukraine crisis would have led to higher prices for aluminium.”

If the LME does ban new deliveries of Russian aluminium and nickel it will not prevent the metal from reaching the world market with shipments redirected to China and India in the same way Russian oil and gas is being rerouted.

Western world shortage as supplies flow into China

But a ban would set up conditions similar to those seen in March with a potential western world supply shortage even as metal flows into China. Despite some of the material likely to be re-exported a layer of complication would be introduced into an already complex market.

Reliability of supply is important for battery makers at a time of strong and growing demand for electric vehicles, which is one of the reasons why nickel traders are closely watching developments at the LME as it decides what to do with Russian metal.

Nickel quality is the second issue worrying battery makers because while Indonesia has emerged as the world’s biggest producer of the metal it does so using an energy intensive process based on the burning of low-grade but expensive coal.

That mix of metal for batteries designed to cut the pollution caused by burning fossil fuels, with nickel which needs a fossil fuel in its production process is starting to become a significant issue for EV battery makers.

Macquarie Bank raised the problem of higher prices for the pulverised coal (known a PCI) used in Indonesia’s nickel processing industry in a report last week which described the coal issue as a “headwind” for Nickel Industries (NIC) Australia’s major player in the Indonesian nickel industry.

High-grade nickel sulphides most desired

The combination of the two nickel issues, Russian reliability and Indonesia quality, opens the door for Australia’s producers of high-grade nickel sulphide, which is what by battery makers want.

Companies such as Mincor Resources (ASX: MCR), IGO (ASX: IGO), Lunnon Metals (ASX: LM8), Nimy Resources (ASX: NIM), Centaurus Metals (ASX: CTM), Panoramic Resources (ASX: PAN), Chalice Mining (ASX: CHN), and Widgie Nickel (ASX: WIN) are either producing nickel sulphide ore, exploring for it or, in the case of Centaurus, planning to upgrade its nickel sulphide to battery grade nickel sulphate.

IGO, in its presentation to the Perth nickel conference, said abundant nickel supply from Indonesia was likely to keep the market fully supplied for the next few years but from 2025, as EV demand accelerates, more supply would be required.