• Peter Gadsdon

Nickel Outlook with Benchmark Mineral Intelligence

Mining Network: “Since the pandemic struck, we saw COVID lows of around $11,000 probably some thanks need to go to Elon Musk in a way for the rally. After that we saw peaks of around $20,000 throughout 2020. We did then see some contraction in 2021, around March it sort of dipped down to around the $16,000 mark. Since then though we have been on a bit of continuous uptick and we're actually not too far now from where we were before in 2020 in terms of peaks, where we're sitting around the $19,000 mark as of today Tuesday 24th of August. Perhaps you could give us a little bit of background as to what exactly has been going on over the last few years and why have we seen this uptick in the price recently?”

Benchmark: “Yeah, the main drivers of the price increase recently have been strong demand from both the stainless-steel sector and the growing battery market. This is kind of in combination with the general rally across commodity markets we've seen since last year's pandemic low. Then on top of this we've also seen some supply disruption. Most notably due to an industrial accident at Nornickel and the recent strike at Vales’ Sudbury plant in Canada which really have helped support prices this year. Focusing more on the battery size we're really seeing persistent, raw material titles for the battery industry at the moment and really emerging this year both on the kind of surging command and also output not being maybe as strong from some of these mines in Southeast Asia. Which were geared up to supply the battery industry in 2021. So, that's really important some raw materials like this and we're seeing maybe a move back towards nickel protective solutions for sulfate production.”

Mining Network: “Back in 2007 we saw phenomenal nickel prices reaching almost $50,000 for a very brief period before crashing back down to around $10,000 the following year. Can you give us a bit of a reminder as to what actually happened there and is it possible that this price volatility is something that's going to be a common theme with nickel moving forward?”

Benchmark: “To give a bit of history, nickels bull run reached, as you mentioned, just over $50,000 back in 2007 during the kind of last commodity super cycle. Which was driven in large part by the industrialization and the urbanization of China during the 2000s. Due to these high prices Chinese stainless-steel producers really pursued a low-cost substitute, the class one nickel. Which because prices were unsustainable at $50,000 a ton clearly. They began utilizing a previously underdeveloped low-grade form of nickels called nickel pig iron, which has previously been viewed in the West as excessively carbon intensive to produce. So, this development as a lower cost alternative to class one ultimately kind of halted nickel's bull run in its tracks. Which is why we saw prices crash the following year and in terms of volatility going forward, I mean I don't really expect anything that dramatic to happen again. I think the market now has fundamentally changed with the ramp up of MPI and nickel pig iron in Indonesia. We now have kind of multiple routes for the battery industry, which is the biggest growth market going forward. I mean they come with their own challenges but yeah I don't see that kind of volatility returning.”

Mining Network: “We have with nickel mainly the source from laterite and then you also have the sulphite deposits around the world. Could you could you give us a bit of an overview or a breakdown of where exactly these deposits are mainly located? Where most of supply is coming from at the moment and is this likely to change moving forward? As we move into sort of the next 10 years where does most of your forecast lay?”

Benchmark: “Yeah sure, so until recently, I guess the mid 2010’s the majority of nickel was derived from sulphide ore deposits, which are found in countries such as Russia, Canada and Australia however with the development of NPI and also new high-pressure asset leads projects announced in Indonesia. This kind of relationship is really starting to change, and we saw in 2017 that nickels arrived from natural for the first time and kind of overtook sulphide as the dominant source of nickel. So, we're now seeing that lateralized accounting for around 62% of the overall market. Looking forward with the vast majority of new supply really coming out of Indonesia that kind of relationship was expected to strengthen. We were expecting laterites to kind of count 73% by the end of the decade. I mean ultimately there's very few sulphide projects in the pipeline. Nothing for the battery industry anyway that will be substantial enough to kind of feed their growing demands.”

Mining Network: “Yeah, you did mention there they are substituting nickel for cobalt in some instances with batteries. It seems nickel isn't potentially the silver bullet. There are still some problems to overcome with the metal aren't there?”

Benchmark: “Definitely. Yeah, I mean the issues in the cobalt market are well documented, but nickel has its own ESG risk, particularly around the environmental impacts of nickel mining and with most new supply coming out of Indonesia, particularly for the battery industry there's a host of environmental risks for the automakers and cell producers linked to tailings management, high pressure added lead plants. Indonesia’s power mix being dominated by thermal coal and deforestation associated with building new nickel plants. So, there's a matrix really of ESG risks where the automakers and cell producers are likely to overcome in their nickel supply chain. So, these challenges particularly in the West as of a reluctant source from Indonesia. Which again most of the new supply out of Indonesia is being built by Chinese owned companies and it's the Chinese dominated supply chain emerging. Indonesia is merging much like the DRC in cobalt and for western automakers and particularly in the US where divided administration highlighted its wish to kind of rely on allied nations. These represent serious supply risks for their battery supply chain because there realistically won't be enough nickel without Indonesia.”

Mining Network: “With that in mind what's the current forecast coming out of Benchmark in relation to demand supply and also your 10-year looking forward pricing consensus?”

Benchmark: “So, Benchmark we're actually forecasting the nickel market to remain in surplus until the mid to late 2020, where we when we then start to see a deficit begin to emerge. However, I think it's important to caveat with those deficits in battery suitable nickel may merge quicker than this. So, we saw in March 2021 Qingshang announced that they were beginning to convert nickel pig irons and maps to the battery industry. Which appeared to solve much of the kind of future supply issues for the battery industry. Which is why we saw prices really crash in March 2021. However, as I’ve mentioned there are there are a number of ESG risks associated with this and for the nickel pig irons and map group this really comes down to the carbon identity of that process. Initial estimates suggesting that it's several times more carbon intensive to produce nickel sulfate by the NPI’s and mountain roots than it is from MHP or more traditional plant class one metal. So, there does appear to be a reluctance from western automated cell producers to use this material. Which is again a major challenge, and which could see deficits emerge quicker than being forecasted.”

Mining Network: “In terms of the pricing of nickel, what's that looking like moving forward?”

Benchmark: “I mean it's hard to say because much depends on how much this kind of the ESG risk can be solved by Indonesia because if challenges related to carbon intensity of these processes are overcome, the incentive price will be much lower for the new nickel supplies. If they can't then it could be substantially higher, so I mean I see nickel prices kind of in a $15,000 to $17,000 a ton range over the next few years. I mean things change very quickly in the nickel market so it's always hard to kind of predict.”