Nickel shapes-up as star battery metal performer in 2023

Nickel played second fiddle to lithium in the battery metal orchestra this year but it’s shaping as the star performer next year.

The switchover will come from a combination of lithium peaking after a stellar run, while nickel gets a double-barrelled boost from the re-opening of China, which means increased demand for stainless steel, nickel’s traditional markets, and the ongoing battery boom.

Hints of a stronger performance by nickel have been apparent all year at the top and bottom of the market.

At the top, BHP (ASX: BHP) is chasing OZ Minerals (ASX: OZL) for the nickel as much as the copper in the central Australian West Musgrave project, while small stocks such as Lunnon Metals (ASX: LM8) have seen their share prices more than double on discovery news.

In between, there has been the merging of Western Areas with IGO (ASX: IGO) to create a mid-tier battery metals specialist, and the re-birth of Mincor (ASX: MCR), which is breathing new life into the WA mining centre of Kambalda – home of Australian nickel.

Chalice Mining (ASX: CHN), sometimes seen as a palladium and platinum play at his world class Gonneville polymetallic discovery on the outskirts of Perth, is also a nickel stock because nickel is likely to be the dominant metal on a financial basis when mining starts.

New entrants into the nickel sector have also performed well, including Nordic Nickel (ASX: NNL) which rose sharply last week (up 20% to $0.24) after reporting encouraging news from geophysical testing of historic drill holes at the Pulju project in Finland.

Nickel squeeze aftershocks

Other small nickel stocks are also attracting attention thanks to the price of the metal rising by 45% over the last six months to US$29,210 a tonne – an increase which washed away some of the damage done when the metal crashed from US$50,000/t during a “squeeze” on a Chinese speculator who sold short just as the price moved up after Russia’s invasion of Ukraine.

The ill-timed bets on the nickel price falling by Xiang Guangda, head of the nickel and stainless-steel specialist Tsingshan Holding Group, sparked a record-breaking surge in the nickel price and almost destroyed the century-old London Metal Exchange (LME) when Xiang’s short position was controversially unwound in his favour.

Aftershocks from Xiang’s speculative trading and subsequent rescue have reverberated through the nickel market since March, but as the dust has settled a picture has emerged of a metal resuming a long-term upswing that started six years ago when it was selling for a lowly US$7,800/t.

The move up from 2016 coincided with the start of demand from battery and early electric vehicle (EVs) manufacturers – a market for nickel which has exploded to match that of stainless steel with EVs expected to soon become the dominant market for nickel.

Underlying demand

Xiang’s trading, which produced the US$50,000/t peak, was a market distorting aberration which has given way to normalised activity, which is confirming the strong underlying demand matched by a collapse in nickel stockpiles, including a 52% fall in material held in the warehouses of the LME from 109,000t to 52,000t over the last 12-months.

Earlier this year, in the aftermath of Xiang’s nickel bubble, I suggested that nickel would outperform the other battery metals, which it has, up 5% whereas copper is down 10%.

Lithium continued rising after May but has recently rolled over as doubts develop about China’s recovery from Covid lockdowns.

While Indonesia is the world’s biggest producer of nickel much of its output, by companies such as Tsingshan, is earmarked for use in making stainless steel.

High-grade nickel needed for batteries and EVs

Battery makers prefer premium quality metal of the sort produced by most Australian miners because it better suited to the metal chemistry of their batteries while EV makers, keen to spruik the environment friendly nature of their vehicles are wary of Indonesian nickel which requires energy intensive processing, often using coal-fired electricity.

Another measure of nickel’s positive outlook for 2023 can be found in BHP’s assessment of the metals market, and while copper demand is expected to double over the next seven years nickel should do twice as well thanks to an expected four-fold demand increase.

Stocks to watch

Stocks to watch as nickel winners in 2023 include:

• Lunnon Metals has just upgraded estimates of metal in its Baker project near Kambalda to 30,800t of contained nickel, taking the company’s global nickel inventory to 79,300t – more than double the mineral resource from when the stock listed in the middle of last year. Lunnon shares have risen by $0.42 (84%) to $0.92 this year.
• Centaurus Metals (ASX: CTM), last month, reported a substantial increase in the nickel resource at its Jaguar project in Brazil to 938,500t of metal. The project is shaping as a tier one source of high-grade nickel, which will be keenly sought by EV makers. Centaurus shares are up a modest 6% this year, but over the past two years the stock has risen by 75%.
• Mincor Resources has just started mining the Cassini orebody to complement its Northern operations close to the heart of Kambalda. Growth plans are being funded by cash flow from mining and a recently completed $60 million capital raising. Mincor share have weakened to $1.50 after the new share issue but Bell Potter reckons they’re heading up to $1.85.

Other small nickel stocks likely to attract attention next year include Aston Minerals (ASX: ASO) which has promising nickel and gold projects in Canada; Nimy Resources (ASX: NIM) which is exploring the promising Mons project in WA; NickelX (ASX: NKL) which is drilling the Cosmos South project in WA; and Poseidon (ASX: POS), which has just started drilling from the floor of the recently dewatered high grade Black Swan open pit nickel mine near Kalgoorlie in WA.

Batteries are the current driver of the nickel market but the appeal of the metal as an investment and likely winner on commodity markets next year is the fact that it has a second market in stainless steel which will benefit from the reopening of China.