Nickel and palladium surge on the back of supply constraints
The past few years have generally been tough for the miners, especially for investors that joined the electric vehicle (EV) metal miners boom at its first peak (January 2018). However, all is not lost. For nimble investors, there are some great gains to be made when metal prices spike, but you need to be not too late to the party. Right now two metals are rising fast on supply constraints and strong demand. Furthermore, they should continue to do well for some time. In many cases, the associated miners have been slow to reflect the gains as investor sentiment has been weighed down by the trade war. This leaves some incredible buys for those willing to invest.
Those two metals are nickel and palladium.
As we can see below the nickel price has recently surged reaching US$18,000/t. This is mostly due to the Indonesian nickel ore export ban to commence January 2020, as well as the Philippines indefinitely suspending nickel mining in southern Philippines (27% of overall Philippine nickel ore exports are from this area).
Nickel supply reductions from the two largest nickel producing countries (Indonesia and Philippines represent 45% of global nickel supply) and an EV led demand surge are combining to cause nickel deficits and a nickel price spike, as shown below.
Add in resilient nickel demand and soon a surge in EV related demand and you have the recipe for a nickel boom.
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Nickel 5 year price chart
EV related demand for class 1 nickel is set to surge more than tenfold from end 2018 to 2025, or increase from 36,000 tonnes in 2018 to 350,000-500,000 tonnes by 2025. In a 2 million tonne total nickel market, a 500,000 tonne increase represents a 25% increase just from the EV boom.
LME nickel inventory levels fell last week the most in 40 years
Just last week LME inventory levels fell the most in 40 years, as China’s Tsingshan Holding Group Co. bought 25,000 tonnes of LME nickel. Apparently a further 75,000 tons of metal are scheduled to be delivered out soon. That could send LME nickel below 50,000 tonnes and panic the market causing nickel prices to surge even higher.
Palladium metal prices have doubled the past year and a half on the back of strong demand for palladium used in catalytic converters. The price is now over US$1,700/oz, significantly higher than gold at US$1,492/oz.
Palladium 5 year price chart
Europe is reducing emissions targets in 2020, 2025, and 2030 and other countries will follow. This means more palladium will be needed in catalytic converters. As reported by Reuters, Morgan Stanley recently stated that starting 2020 in China each vehicle will need to contain around 30% more palladium, platinum and rhodium. Some analysts are already forecasting US$2,000/oz palladium.
The only caveat here is if we see very rapid electric vehicle take up and hence less internal combustion engine (ICE) vehicles then demand could stall or even reverse. However, this should still be several years away given the electric car market share globally is still only at 2.3%. Hybrid EVs use both palladium and nickel. Note also that platinum can be used to substitute for palladium but it is not so easy and the cycle to replace can be costly and take ~2 years.
The ideal way right now to play these two booming metals is via any companies that either own or produce both nickel and palladium. A few producers that come to mind are Norilsk Nickel (LSX: MNOD | OTC: NILSY), Anglo American Platinum (OTC: ANGPY), and Impala Platinum Holdings Ltd. (OTCQX: IMPUY). Some promising juniors developers with nickel and palladium would include RNC Minerals (TSX: RNX | OTCQX: RNKLF), Amur Minerals (LN: AMC), and Ardea Resources (ASX: ARL, ARRRF). Some promising explorers in safe jurisdictions include Canadian Energy Materials Corp. (TSXV: CHEM), Noble Mineral Exploration Inc. (TSXV: NOB), Searchlight Resources Inc. (TSXV: SCLT) and 21C Metals Inc. (CSE: BULL | OTCQB: DCNNF).
Matthew Bohlsen is a Senior Editor for InvestorIntel.com. With a Graduate Diploma in Applied Finance and Investment, and a Graduate Diploma in Financial Planning. He ... <Read more about Matthew Bohlsen>