Alternative Investments

Nickel Prices Spike After Tesla’s Conference Call

This was supposed to be the year of nickel’s rebound.

Some forecasts even had the industrial metal surging 20% to $16,375 per metric ton.

And 2020 was supposed to be only the beginning. Nickel was projected to top $25,000 per ton by 2025 and $28,000 per ton by 2027.

Those are levels the metal hasn’t seen since the booming glory days of 2006.

And those surging prices were expected to be fueled largely by the massive expansion of the global electric vehicle (EV) market.

The global demand for nickel in EV batteries is projected to increase more than tenfold from 2018 to 2025.
Global Demand for Nickel in EV BatteriesBut, as is so often the case with nickel, that optimism – and those rocketing prices – is easily undone.

A Bull Market Undone

Nickel has long earned its reputation as the most volatile metal contract.

The global economy and the metal’s dependence on stainless steel demand are constant thorns and opportunities for traders.

The ongoing economic feud and tit-for-tat tariffs between the U.S. and China have only added to the roller-coaster ride of the last couple of years.

And what a roller coaster it’s been.

From the end of December 2018 to October 2019, nickel rocketed nearly 70% higher and topped $18,000 for the first time since 2014.

The reported shortage of stainless steel, as well as Indonesia’s 2020 ban on nickel and ore exports, got the bulls into a frenzy.

Then traders realized there was no stainless steel shortage. It was all speculation. And prices imploded.
3 Year Nickel PriceBut 2020 was supposed to be a year of renewed hope… a reset as the global markets shook off the disastrous speculation from the summer of 2019.

Then COVID-19 struck.

At its lows in March, nickel tumbled below $11,200 per metric ton. It’s since rebounded and topped $13,700.

But are even brighter days ahead?

The Moodiest Metal to Shine?

Tesla (Nasdaq: TSLA) CEO Elon Musk called on nickel miners to be more efficient and environmentally cautious. If they could accomplish this, riches awaited them.

“Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way,” Musk announced on the company’s second quarter conference call.

That sentence right there drove nickel’s price from $13,100 to more than $13,700 per metric ton.

And the need for nickel for EV batteries is a real issue. The number of EVs sold is projected to top 28 million by 2030.

But a shorter-term bullish move has to overcome the realities of 2020.

Due to COVID-19, the nickel market has shifted from a deficit of 31,500 metric tons in 2019 to a surplus of 57,300 metric tons through the first five months of 2020. And it’s expected to only get worse. It is forecast that there will be a surplus of 100,000 metric tons for the year.

If that pans out as expected, it will be the first year the global nickel market is oversupplied since 2015.

Nickel prices are facing a near-term uphill climb. But there is potential for a move toward the forecast $25,000 level.

Investors and traders are putting a lot of pressure on EVs to drive nickel prices higher.

But there are some ugly truths we have to face. Nickel is a $20 billion annual industry, with more than two-thirds of demand originating from stainless steel.

And 60% of the world’s production comes from just 10 companies:

  • Vale (NYSE: VALE)
  • Norilsk Nickel (OTC: NILSY)
  • Jinchuan Group International Resources (HKG: 2362)
  • Glencore (OTC: GLNCY)
  • BHP Group (NYSE: BHP)
  • Sumitomo Metal Mining (OTC: SMMYY)
  • Sherritt International (OTC: SHERF)
  • Eramet (OTC: ERMAY)
  • Anglo American (OTC: NGLOY)
  • Minara Resources.

We can see that most trade over the counter (OTC). But that doesn’t mean they’re risky (I explain this in my YouTube video on OTC stocks). These are major international miners.

But new nickel discoveries are becoming increasingly rare.

Now, battery-grade nickel is very different from what’s used to make stainless steel. And Vale’s Voisey Bay has one of the newest appropriate discoveries in production.

Investors with a longer time horizon – 10 years or more – and the stomach to ride out nickel’s notorious roller coaster have the potential to score big. The forecast for EV battery demand is impossible to ignore. But don’t expect a smooth ride and instant gains. Nickel is the moodiest of metals.

Here’s to high returns,

Matthew