War in Eastern Europe could herald 'black swan' event for nickel - Russia supply uncertainty

Wed 02 Mar 22, 3:49pm (AEDT)
Nickel Mining

Key Points

  • The Russia-Ukraine war could exacerbate existing tight nickel supply conditions
  • Russian exports account for circa 5.3% of global output
  • Emerging ASX nickel players include Panoramic, Poseidon Nickel and Mincor

Nickel prices rallied through US$25,000 a tonne with ease, more than double March 2020 lows of US$11,000. 

The onset of the Russia-Ukraine war has only intensified prices and exacerbating existing supply concerns. Russia is a major supplier of key raw materials, with its nickel exports making up roughly 5.3% of global output, according to JPMorgan. 

The backstory

Accelerating demand for electric vehicles and battery applications is a recent driver for global nickel demand. There's also an additional kicker for nickel due to the post-pandemic rebound in traditional applications such as stainless steel.

The use of nickel in battery precursors is expected to grow by 60% year-on-year to 280,000 tonnes globally in 2021, according to the Office of the Chief Economist. 

Global nickel demand and supply have remained tight. Previous deficits in 2018-19 drove prices from a trough of roughly US$9,000 a tonne in mid-2017 to peaks of US$17,900 by late 2019.

World Nickel Consumption and Production Resources-and-Energy-Quarterly-December-2021
Source: Resources and Energy Quarterly, December 2021, Office of the Chief Economist

Just how bad is it?

Industry sources told S&P Global Platts that Russian nickel is a key delivery product on the Shanghai Futures Exchange (SHFE) and a “full-blown crisis in the region could further tighten SHFE’s nickel warehouse receipt volumes”.

“Russian nickel has managed to create a vital place in China's nickel market. If nickel exports from Russia get impacted in the future, this could tighten nickel supply in China, further squeezing SHFE's nickel warehouse receipt volume.”

From a global perspective, LME nickel stock levels have been on a sharp decline since early 2021.

For the uninitiated, LME refers to London Metal Exchange approved storage facilities across the Americas, Europe and Asia.

Nickel price and stock levelsResources-and-Energy-Quarterly-December-2021
Source: Resources and Energy Quarterly, December 2021, Office of the Chief Economist

ASX nickel stocks

The local nickel scene is relatively scarce when it comes to established producers.

BHP (ASX: BHP) is the largest player, operating the Nickel West project, one of the largest nickel sulphide resources globally. However, the stock itself doesn't exactly provide investors with much direct nickel exposure.

IGO (ASX: IGO) blends in well with the electric vehicle narrative with its nickel, copper, cobalt and lithium operations. The company recently completed the acquisition of Western Areas (ASX: WSA). The acquisition will diversify IGO's reserve base from 71% lithium and 22% nickel to 52% lithium and 43% nickel.

Emerging players include:

Panoramic Resources (ASX: PAN) has a market cap of $500m and recently hit producer status, shipping its first nickel-copper-cobalt concentrate in December 2021.

Poseidon Nickel (ASX: POS) has a market cap of $285m with plans to complete a feasibility study and final investment decision for its Black Swan Nickel project by July 2022. Mincor (ASX: MCR) is close to the $1bn club with plans to make its first nickel concentrate sales in the June quarter 2022.

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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