Nickel stockpiles slip as the ‘clean energy revolution’ revs up

Nickel stockpiles LME london metals exchange clean energy revolution

As the nickel price creeps towards US$7 per pound and stockpiles slip past the psychological 300,000t barrier, Poseidon Nickel (ASX: POS) chief operating officer Michael Rodriguez claims the market is witnessing the “real drawdown” of global nickel supplies, which is the precursor to a supply crunch that many analysts believe will rival the China boom.

Speaking at the recent American Chamber of Commerce business briefing, guest presenter Mr Rodriguez told attendees the clean energy revolution was coming, and it was going to happen “faster than we think”.

He added he believed the new boom would also be longer than the previous China-fuelled growth.

To underpin his reasoning, Mr Rodriguez pointed to 1900s in New York – when the horse and carriage were the primary mode of transport.

However, the internal combustion engine revolution turned transport on its head, with the horse and carriage becoming a scarce sight on New York’s streets only a decade later.

Mr Rodriguez said the emerging clean energy revolution is a similar scenario and is powered by technology that is “advancing at breakneck speed”.

Sustainable energy is increasingly used to power or stabilise energy supplies to homes, towns and cities.

Governments around the world have battled mounting carbon dioxide emissions and pollution for years and clean energy technology is now giving them the tools needed to curb these problems.

The electric vehicle space is taking off in many countries around the globe with Europe and China leading the stampede.

Norway has legislated that by 2019 all road traffic must be electric vehicles – no more internal combustion engines.

Over in China, the government has mandated that 12% of all stock on the road must be electric vehicles as it attempts to curb its critical pollution problems.

In addition to possessing greener power, electric vehicles are believed to attract a lower life-time price due to less moving parts, with most comprising about 20. This compares to a typical internal combustion engine vehicle which contains around 1,700 moving parts.

Meanwhile, renewable energy in the form of solar and wind farms is becoming more prevalent, with these systems requiring the lithium-ion battery to store the power they generate.

Last year, the South Australian Government turned on its Elon Musk-delivered 100-megawatt lithium-ion battery storage system, which has the capacity to power 30,000 homes.

The storage system was paired with Neoen’s Hornsdale wind farm which charges the lithium-ion powerpack.

Since going live, the system has not only propped up South Australia by stabilising the power grid but helped Victorians by preventing a major power outage after a power plant went down.

As the technology becomes more prevalent and refined, Mr Rodriguez believes the cost for electric vehicles and other clean energies will fall making them accessible to the masses.

Once this happens, Mr Rodriguez believes the clean energy revolution will rocket taking nickel and other critical battery minerals along for the ride.

What’s nickel’s role in the lithium-ion battery?

Electric vehicles and other sustainable energy sources are powered by the rechargeable lithium-ion battery.

In a typical electric vehicle, the lithium-ion battery cathode comprises anywhere between 33.3% to 80% nickel, with analysts predicting most newer batteries will contain around 80% nickel by 2020.

Nickel market dynamics

Traditionally, nickel’s primary market has been in creating nickel pig iron or ferronickel which are used in manufacturing lower-grade stainless steel.

In addition to the emerging clean energy revolution, nickel consumption in its traditional space has picked up with the stainless steel market experiencing double digit growth the past two years.

Mr Rodriguez said we are witnessing, first-hand, a bifurcation of the nickel market, with the lower-grade nickel laterite ore flowing into the traditional nickel pig iron industry and the scarcer higher-grade nickel sulphide material branching off into the lithium-ion battery.

Analyst Roskill forecasts nickel demand for the lithium-ion batteries, alone, could surge up to 400,000t by 2025 – which is far more than the 296,316t currently in the London Metals Exchange’s (LME) stockpiles.

London Metals Exchange LME nickel stockpile May 2018

According to Mr Rodriguez, the lower-grade nickel laterite ore makes up more than 62% of the nickel market, with nickel sulphides accounting for the remainder.

Adding to picture is the far higher cost of processing nickel laterite ore into a battery grade material, with Mr Rodriguez estimating it can cost a nickel laterite miner US$400,000/t to achieve battery ready nickel.

He said in comparison, nickel sulphide is a “fraction of that cost” to deliver a battery ready nickel to end-users.

As nickel’s new direction unfolds, Mr Rodriguez also points out that the pipeline of nickel exploration projects around the world is dry.

He said it can take up to seven years to find and develop a new nickel resource – noting that if the current clean energy revolution forecasts are correct, the commodity is travelling into unchartered territory.

Poseidon Nickel’s position

Mr Rodriguez admits it has been an incredibly “challenging fives years in the nickel market” and likewise for nickel miner and explorer Poseidon Nickel, which is one of Australia’s largest ASX-listed nickel sulphide plays with advanced projects.

However, the company has waited out the downturn with the support of its investors including majority shareholder Andrew Forrest who has kept his 13% interest in the company.

During the downturn, Poseidon Nickel built up more than 400,000t in nickel sulphide resources across its Western Australian portfolio.

The company has more discoveries to firm up, and several existing operations on care-and-maintenance, just waiting for the commodity’s price to kick up past the US$6/lb and hold.

With nickel price hovering above that mark since early April – even tipping US$7/lb mid-month, before slipping again, Poseidon Nickel and other advanced nickel operators are keenly attuned to the commodity’s movement.

Poseidon Nickel ASX POS Silver Swan underground mine
Poseidon Nickel’s Silver Swan underground mine.

As the nickel price continues its upward momentum, Poseidon Nickel is poised to pull the trigger on restarting its high-grade Silver Swan nickel mine as part of its clear pathway back to production and positive cash flow.

Once Silver Swan is generating cash flow, it will be used to fund a restart of the company’s nearby Black Swan plant and pit, which will, in turn, be used to recommence other operations and discover new deposits.

Mr Rodriguez said Poseidon Nickel’s strategy was to emerge as a class one nickel producer to feed the looming nickel supply deficit and benefit from the rising price when it comes.

Comments quoted in this article are views and opinions of the company and individuals within the company, not investment advice. You should always seek professional financial advice before making any investment decision.

Lorna has more than 10 years' experience as a finance journalist and editor. She has written for numerous industry publications reporting on various sectors, including: resources, energy, construction, biotech, pharma, science and technology, agriculture, and chemicals. Specialising in resources, Lorna has also covered a myriad of small and large cap ASX and dual-listed stocks.