Nickel Rises By Limit In Shanghai On EV Optimism, Asian Growth

Photo: Nickel Rises By Limit In Shanghai On EV Optimism, Asian Growth

It would appear that the nickel market is heating up. It recently rose by its daily limit in Shanghai, and in London, the price has eclipsed the highs of 2015. The primary driver is thought to be robust demand from steel makers in China, but the market for nickel sulfides is also growing at a feverous pace. This is very welcome to long suffering nickel producers, many of whom have lost significant amounts of money since the nickel market fell apart in the wake of the crisis of 2008.

The Swiss trading powerhouse Glencore lost billions in it's ill timed takeover of Xstrata, which left it holding the Cosmos nickel mine in Australia. At the time of the takeover the mine was valued at over 2 billion US Dollars, but when Glencore sold the property off to Western Areas in 2015, they received less than 20 million US Dollars.

This sort of tragedy has been common in the nickel market over the last decade, so it is easy to understand why nickel producers and traders are looking at this recent push upward with skepticism.

Regardless of the dreadful market that nickel producers have endured, this uptick in price looks to be fueled by strong fundamental factors. The China expansion narrative is firmly in place, and a recent streak of strong PMI's from across the planet back up the idea that Chinese industrial expansion isn't going anywhere.

In fact, insiders point to the Communist Party's desire to push the quality of construction up as one of the reasons why the market for nickel is poised for better times, as is a key ingredient in high quality steel.

The Emerging EV Angle

In the west, Electric Vehicles (EV's) are seen as something of a novelty. Despite Tesla's gargantuan market cap, there aren't that many EV's being sold into the US market. The story in the EU is more promising for EV makers. But in China, there could be some major changes afoot.

China has been toying around with the idea of banning the internal combustion engine in automobiles, and when we look at the sheer number of EV's on Chinese roads, it isn't hard to see how China may be a 100% EV nation in less than a decade.

By now most investors have caught on to the rise in demand for exotics like cobalt and lithium, but when it comes down to it, copper and nickel are both badly needed in huge quantities to make China's EV dream a reality. The EV market currently makes up just 3% of the overall demand for nickel, but that percentage has risen by more than 40% over the last year. As countries around the world push EV development into the forefront of transportation, nickel's role will likely expand.

Copper is also a big player in the EV space, as the average EV uses 4 times more copper than a standard car. It is also worth noting that the charging stations for EV's will demand a large amount of copper, as will the electrical infrastructure that will support the changeover from petroleum. The demand for copper is already surging, and there haven't been nearly enough new copper deposits found over the last decade. This could spell much higher prices for the red metal going forward, as countries scramble to lock in reliable supplies.

Good Options Exist

The lack of investment in resources since the crash in 2008 is starting to take its toll on companies that haven't been looking into the logistics of shifting away from existing energy infrastructure. But there have been investors like Gianni Kovacevic who have seen the opportunities that sustainable energy hold for the development of the human condition.

He took the lack of investment in copper development, and turned it into an opportunity. Over the last few years he founded CopperBank, and bought up some very promising deposits that could help supply the materials needed to make sustainable energy the new reality.

If you are interested in hearing what he thinks might be just around the corner, the upcoming Silver and Gold Summit is a great chance to catch him in person. He will be joining a long list of notable resource investors, many of whom share the opinion that copper is breaking into a new role in the world economy. The Summit takes place on November 20th and 21st, in downtown San Francisco. There is still time to register, and we look forward to seeing you there!