The 10-Minute Take: The Great Nickel Rush of 2022

Speaker 1 [00:00:02] Hi, it’s John here,

Speaker 2 [00:00:03] and it’s Theresa.

Speaker 1 [00:00:04] Theresa, our last episode was about travel, so maybe we can kick off with the travel question. Have you ever been to the big nickel in Sudbury?

Speaker 2 [00:00:12] I have, but it was during the pandemic and it was closed when I got there, so I just stood out in the rain for a few minutes, marveling at it. What’s it like inside?

Speaker 1 [00:00:21] Well above ground. There is the big nickel. Great for selfies, but the real treasure is below ground. So you’ve got to go back because the trip underground is a true Canadian experience in those shafts in that ore body used to come 90 percent of the world’s nickel. And it made Canada a mining power over the past century, century and a half. In fact, entire world wars were fought in some ways with Canadian nickel, and out of that ore body came great companies like Gingko and Falcon Bridge. But here we are in the 2020s, nickel is again a thing, as we’ve all seen in the headlines, enormous chaos and volatility in nickel markets because another significant nickel power Russia is being cut off from world markets. That’s going to have a big impact for Canada as a nickel supplier, but also for a lot of disruptors and innovators out there in the tech space, including EV manufacturers who rely on nickel.

Speaker 2 [00:01:18] But that is fascinating. What a timeline of Nicole’s prominence in Canadian history. And it does help inform our conversation today.

Speaker 1 [00:01:27] Welcome to disruptors, the 10 minute take where we dove into the latest innovation, tech and economic buzz.

Speaker 2 [00:01:33] This week’s take is on the nickel market chaos of the last few weeks. Prices soared to record highs. Trading on the world’s largest venue stopped, then restarted and then was hit with glitches. It’s been one of the most extreme events ever seen in the metals markets,

Speaker 1 [00:01:46] and to help us better understand what’s going on, we’re joined by Sam Crittendon, mining analyst at RBC Capital Markets here in Toronto. Sam, welcome to the 10 minute take.

Speaker 3 [00:01:55] Yeah, thanks for having me.

Speaker 1 [00:01:56] Great to have you on the podcast. So Sam, first explain quickly the chaos what on Earth went on over the last few weeks in nickel?

Speaker 3 [00:02:04] Yeah. So two weeks ago, you saw a perfect storm in the nickel market. It was already tight. You had low inventories. There were several supply disruptions over the last two years which got us to this place. All the while demand has been extremely strong given governance, stimulus and everything else. You’ve seen strong demand for hard goods, appliances that a big consumer of nickel. And so with that as a backdrop, when Russia invaded Ukraine, it layered on another element to this tightness in the market. And with that said, you had Singh Shen, who also happens to be one of the biggest suppliers of nickel, held a large short position on the LME exchange. And so what happened is the price started to rise. They scrambled to try to cover their short, and that results in a massive spike in the prices. So the price was hovering at around $10 a pound, spiked up to about forty five dollars a pound. So a massive move in one day forced the LME exchange to halt trading for several days, actually before they were able to unwind some of these trades. And they’re just now trying to get the market to be back into a normal state. The price is still extremely volatile. It’s been up and down 15 percent a day the last couple of days, and it’s starting to find a range at around $15. But to put that in context, the five year average before that was 840. So we’re basically double what we’ve been considering a normal nickel price the last five years.

Speaker 1 [00:03:33] And so it’s this same, a new normal that we’ve had a reset and what would be the fundamentals behind that?

Speaker 3 [00:03:39] Yeah. So I think the fundamentals were supporting something around $10. And I think ultimately you’ll get back to something at that level. There probably is a structural component to this. I mean, it depends on for all these commodities, how much of that Russian material finds its way into other markets, whether it’s China, India or other countries that are willing to accept that. And the reality is a lot of that Russian material does go into China on a normal basis, but nobody is willing to ship it. Nobody’s willing to insure it or finance those transactions. So just the logistics become that much more complicated. So there may be a structural component. So to answer your question directly, we are probably living in a world of higher nickel prices for now, but probably not 15 16. Forty five dollars, but maybe 10, 11, 12 is where the price settles out.

Speaker 2 [00:04:29] So Russia’s invasion of Ukraine sparked fears of supply constraints, especially given that they produce 15 to 20 percent of a high grade nickel required for EV batteries, which is increasingly in demand as the world shifts towards net zero. Does the world have enough nickel to meet this growing demand?

Speaker 3 [00:04:46] Yeah. So to unpack that a little bit. First, a lot will depend on where that 10 percent from Russia ends up. And if it does continue to go into China, then you probably end up in a similar spot where we were before the invasion. Over time, though, the. We’re seeing an electric vehicles, and it’s happening year over year. I mean, this year is expected to basically double from last year in terms of the demand needed for electric vehicles, and that is going to be very significant over the next 10 years. I mean, on our estimates this year, we have electric vehicles that are about, you know, 10 percent of global nickel demand, whereas by 2030 that could grow to about 30 percent of the nickel consumption globally. So all the while, stainless is expected to remain strong. So that requires new sources of nickel that need to come from somewhere.

Speaker 1 [00:05:34] Where’s that? Some are going to be Sam. Are we seeing a nickel rush like we’re seeing with lithium and other minerals that are going to be needed for the energy transition? Yeah.

Speaker 3 [00:05:43] What’s interesting with Nikola? It’s a bit unique. So as you saw the last time nickel spiked back in around 2007, you saw the development of nickel pig iron, which you’ve probably heard of and sort of capped the price for almost 10 years. And that is taking low grade deposits, lower quality nickel and upgrading it just enough to be usable in the stainless steel application. So what you’re seeing now is huge investments in Indonesia, funded in partnership with China to develop their low grade deposits and make them viable not just for stainless but also as battery materials. So that’s where a lot of the investment is happening right now, and some of it’s unproven technology. But given the amount of money they’re throwing at it, it odds are it will work if it doesn’t work. And even if it does, you will need supplies for nickel from elsewhere. And there’s a lot of other companies in other parts of the world trying to advance nickel projects.

Speaker 2 [00:06:37] Have you noticed any work arounds or substitutes to reduce the reliance on nickel?

Speaker 3 [00:06:42] Yeah, the big thing will boil down to battery chemistry. So right now, if you buy a Tesla in North America, you’re getting a battery that does contain nickel as well as cobalt is another metal that’s going to be already is scarce. But if you buy certain types of Tesla in China and other parts of Europe, you might get a lithium ion phosphate battery, which is a different type of technology. And like a lot of things, it’s a trade off. It’s a lower quality battery. You don’t get the same range doesn’t behave well in cold weather, but it’s cheaper, especially if nickel and cobalt continue to rise and become more scarce, so that in the short term is probably the biggest substitution point. And then other than that, there’s also other emerging battery technologies. It’s all a fairly new market, so it’s going to evolve over the next five, 10, 20 years.

Speaker 1 [00:07:32] You mentioned some stainless steel, which of course, is critical to all our homes and commercial buildings, and it’s also what the majority of nickel goes into as we look at a materials revolution in many ways over the coming decades to get to net zero. Do you think there’s going to be a big shift in the demand and usage of stainless steel?

Speaker 3 [00:07:51] It’s one of those things that it’s almost what’s in style at any given point. I mean, the alternative is buying something with coating on it. So steel with paint know so you buy a white fridge instead of a stainless steel fridge or something like that. So that tends to go along with consumer trends. So if nickel becomes prohibitively expensive and or used in other applications like batteries, then maybe some of that stainless does get crowded out. Some of it, though, is used in applications in restaurants and hospitals and things like that where you kind of need to use that not stainless steel product. Copper is being used as a potential alternative given its anti-microbial bacterial properties. And so that’s something that’s another alternative. So there’s other ways to substitute away from stainless, but it’s still going to be a key consumer product in a number of applications for a long time.

Speaker 1 [00:08:44] I’m thinking back to Sudbury, and it sounds like it’s a good time to be in the nickel business for the years ahead. Sam, thanks for being on the 10 minute take. Yeah, great

Speaker 3 [00:08:53] to be here. Thank you.

Speaker 2 [00:08:55] So, John, for this episode, I was reading about people actually hoarding nickel coins as a way to make some money with the price surge, even though I’m pretty sure melting down nickels is illegal. But it makes me wonder how much would the big nickel be worth now?

Speaker 1 [00:09:10] Oh, that sounds like a million dollar question. Maybe we can crowdsource that with our listeners who can come to our RBC thought leadership web page and maybe make some suggestions that

Speaker 2 [00:09:19] would be hilarious. That is it for this week’s 10 minutes. Join us again next week for our regular episode. Until then, I’m Teresa, though,

Speaker 1 [00:09:27] and I’m John Stackhouse. Talk to you soon, disruptors.

<Speaker 4 [00:09:31] The 10 Minute Take is created by the RBC Thought Leadership Group and does not constitute a recommendation for any organization, product or service. It’s produced and recorded by Jar Audio. For more disruptors content, like or subscribe wherever you get your podcasts and visit RBC dot com slash disruptors.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.