Shore Capital today noted that Trafigura believes now is the time to invest in battery nickel (i.e. nickel sulphates and hydroxides), citing expected structural deficit. There appears to be some confusion in the press as to whether it is the demand for nickel or that for nickel sulphate that Trafigura expects to increase to 3Mt by 2030. On balance, we believe it most likely that Trafigura was talking about overall nickel demand, which would be a c.50% increase from 2016.
What seems clear, however, is that most of the 1Mt increase in demand is expected to be for nickel sulphate (or its intermediate, nickel hydroxide) for use in lithium-ion batteries (particular for electric vehicles). Trafigura 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. Yesterday, we noted that in our conversations with investors, 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 steel-making nickel. (Glencore had embraced this this line of thinking in late 2016, BHP and South32 came aboard during the summer, and yesterday, the London Metal Exchange said it was considering joining the party).
We noted that while nickel demand from lithium-ion (Li-ion) batteries is generally estimated to have been in the order of c.50-100kt Ni in 2016, there appears to be widespread agreement that incremental demand from batteries could be in the order of c.1.0-1.5Mt by 2030, with material supply deficits of battery nickel expected from the early 2020s.
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). Recognising this new reality, Anglo Pacific (APF^, NR, CNP) recently entered into a ‘growth’ royalty agreement with privately-held Brazilian Nickel, whereby Anglo Pacific Group PLC 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).
Anglo Pacific Group PLC is a global natural resources royalty and streaming company. The Company’s strategy is to develop a leading international diversified royalty and streaming company with a portfolio centred on base metals and bulk materials, focusing on accelerating income growth through acquiring royalties on projects that are in the main currently cash flow generating or are expected to be within the next 24 months, as well as investment in earlier stage royalties. It is a continuing policy of the Company to pay a substantial portion of these royalties and streams to shareholders as dividends