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Shore Capital Mining Pre-Shift Brief

IN TODAY’S ISSUE

1. BATTERY NICKEL – Sumitomo expects nickel to be in supply deficit for third year, sees battery nickel consumption doubling
2. DEMOCRATIC REPUBLIC OF CONGO – Kabila to approve controversial Mining Code, consider companies’ concerns later
3. ZANAGA IRON ORE COMPANY^ (ZIOC, NR, CNP) – US$3.8m of cash as at Feb 2018; EPP project updates in Q2 2018
4. CHARTS – Selected prices & currencies

NR=No Recommendation
CNP=Coverage not Pending

Yuen Low – 020 7647 8152; yuen.low@shorecap.co.uk

BATTERY NICKEL – Sumitomo expects nickel to be in supply deficit for third year, sees battery nickel consumption doubling. For 2018, Japan’s largest nickel producer Sumitomo sees the global nickel market to be in supply deficit for a third straight year, and expects nickel demand from electric vehicle (EV) batteries to double. Sumitomo is forecasting global supply at 2.19Mt Ni and demand at 2.27Mt. Of the latter, EV battery consumption could be c.100kt, versus 40-60kt in 2017 (50-75kt reported elsewhere).

In November 2017, Trafigura said that it was expecting nickel demand to increase to 3Mt by 2030 as a result of EV demand. Trafigura’s chief economist was quoted saying that “when you look structurally, we should start to get bullish now”, questioning whether demand can be met given “underinvestment in the supply side”.

Trafigura’s comments echo our sentiments. We have for some time now been expounding the concept that nickel will become a two-speed market in the not-to-distant future, with ‘battery nickel’ attracting substantial premiums over steelmaking nickel. (Glencore had embraced this this line of thinking in late 2016; BHP and South32 came aboard during the summer of 2017; and in November 2017, the London Metal Exchange said it was considering joining the party).

We have noted that widespread agreement that incremental demand from batteries could be in the order of c.1.0-1.5Mt by 2030. However, most incremental supply during this period appears likely to be in the form of ferronickel or nickel pig iron (NPI), which are not suitable for the battery market. Instead, battery manufacturers will be seeking nickel hydroxides and sulphates (nickel hydroxide is an intermediate used to produce nickel sulphate). We expect material supply deficits of battery nickel expected from the early 2020s.

Recognising this new reality, in September 2017, Anglo Pacific Group plc (APF^, NR, CNP) entered into a ‘growth’ royalty agreement with privately-held Brazilian Nickel, whereby APF will provide up to c.US$70m of construction funding in return for gross revenue royalties (GRR) of up to 5.5% (depending on development scenario implemented).

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.