ASX nickel stocks: Where did it all go wrong in 2023 and will 2024 be better?

Nick Sundich Nick Sundich, January 15, 2024

ASX nickel stocks have had amongst the toughest 12 months of any sector on the Australian bourse. Despite nickel’s importance to the electric vehicle boom, a massive oversupply has led to plunging prices and for several mines to become non-profitable. Nickel is far from the only battery metal with these issues, but arguably the most magnified right now after Panoramic’s Savannah mine closed down. We look at what is next for the sector.

 

Why nickel is important

Since the advent of electric vehicles (EVs), there has been a growing demand for nickel. This versatile metal is a key component in the production of EV batteries, making it an essential element in the transition to sustainable transportation.

Nickel is known for its high energy density, which means it can store large amounts of energy in a small space. This makes it a crucial element in the development of long-range and high-performance EV batteries. In fact, nickel accounts for about 80% of the cathode material in modern lithium-ion batteries used in EVs.

Its unique properties also allow for faster charging times and longer battery life, making electric vehicles more practical and convenient for consumers. Aside from its use in batteries, nickel is also essential in the production of electric motors and power electronics. It is a key component in the permanent magnets used in EV motors, allowing for efficient energy conversion and increased performance.

Furthermore, nickel plays a vital role in the overall sustainability of EVs. As governments worldwide push for stricter emissions regulations, the demand for clean energy vehicles continues to rise. Nickel’s abundance and availability make it a more environmentally friendly option compared to other metals, such as cobalt, which is often associated with unethical mining practices.

In addition, the use of nickel in EVs also contributes to the circular economy. With the potential for battery recycling and reuse, nickel helps reduce waste and decrease the reliance on new sources of raw materials. As the world shifts towards cleaner and more sustainable transportation, it was assumed that importance of nickel in EVs would only continue to grow. So we thought…

 

The state of ASX nickel stocks

12 months ago, the benchmark price for nickel on the London Metals Exchange (LME) was US$30,000 per tonne. Now it is barely above US$16,000 per tonne. There is a general oversupply of nickel in the world as EV sales are weaker than expected. Also hurting matters was rapid growth from nickel producers in Indonesia, many of which are backed by Beijing. Indonesia has more than half the world’s production and it could have 66% by 2032 if forecasts from Benchmark Minerals turn out right.

This has hit many nickel stocks on the ASX. Amongst them:

  • IGO (ASX:IGO) told investors it may have to write of all $1.3bn it paid for Western Areas just 18 months ago
  • Panoramic Resources sank into administration just prior to Christmas. Granted, nickel prices were only part of them problem, with bad machinery and bad weather also hurting the company. In a double blow for IGO, it held 13.7% of the failed company and had tenements surrounding it. Hey, at least its $312m bid in 2019 wasn’t successful.
  • Mincor Resources was acquired for $760m by Andrew Forrest’s private nickel explorer Wyloo Metals. Although it suffered a blow in the form of BHP refusing to take ore because it had too much arsenic.
  • Perenti (ASX:PRN), which had 160 workers on Mincor’s Savannah project, now faces the decision of what to do with these workers.
  • Nickel Industries (ASX:NIC) hasn’t fared that bad with a 44% share price plunge in 12 months. At the same time, it has warned that over 1,000 jobs are in the balance. One grace is that it counts Glencore as a Western customer and is due to start supplying nickel matte to it this month.

That’s just the producers. If you thought they had it bad, spare a thought for explorers trying to drum up investor attention amidst safer alternatives like gold stocks.

 

So will 2024 lead to a rebound?

To 2021/2 levels? Highly unlikely.

Ratings agency Fitch estimates nickel prices will be at US$20,000/t. This would be an improvement, but well below pre-COVID levels. The supply glut and weak demand for China is expected to continue to be a laggard on nickel stocks.

This is not the first battery metals bust cycle to hit nickel stocks and other battery metal stocks and won’t be the last. But for now, we think investors should avoid nickel stocks given all the risks and uncertainties facing it. Yes, they say that without risk there is no reward, but it is difficult to see any upside in the short to medium term.

 

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