Nickel spike to hand cash windfall to miners in LatAm

Global responses to Russia’s invasion of Ukraine prompted an unprecedented spike in nickel prices – and the war will continue to prop up prices over the near-term, delivering a cash windfall for producers in Latin America.

During last week’s surge – which caused the London Metal Exchange to cease trading of the metal – nickel trades topped out around US$100,000/t, up from US$22,000-25,000/t (US$10.00-11.40/lb) in January-February.

Prices spiraled amid fears over the impact of Western sanctions and air travel restrictions on Russian shipments of the metal.

Russia was the world’s third largest nickel producer last year, producing around 250,000t of the metal, a key component in stainless steel manufacture.

Brazil – Latin America’s top producer – generated around 100,000t, up from 77,100t in 2020, according to data from the US Geological Survey.

Russia also hosts Norilsk Nickel (Nornickel), the biggest global refined nickel producer.

“Norilsk produces close to 13% of world’s nickel output, and there are sanctions and trade interruptions in getting nickel out of Russia,” CPM Group managing partner Jeffrey Christian told a webinar.

LONGER-TERM TREND

While the recent spike in nickel is clearly linked to the situation in Russia, other factors have supported rising prices in recent years.

Nickel rose from a recent low of around US$11,000/t in 1H20 to around US$16,000/t in mid-2021, before passing US$22,000/t in early January.

“With nickel and with a lot of metals… gold, silver, platinum, palladium, you have a confluence of things happening right now,” Christian added.

One is that prices are rebounding from depressed demand in 2020, when markets were impacted by the COVID-19 economic lockdowns, and a second is that supply and demand are tight.

“Nickel is critical for stainless steel. Demand for stainless steel has been rising very sharply,” according to Christian.

A third factor is investment demand, which has increased based on the idea that the world will transition swiftly to electric vehicles, production of which requires nickel, particularly high-purity nickel sulfate for lithium ion batteries.

“Those things were pushing the price up. Then you had the war,” Christian said.

PATH FORWARD

While Russia’s invasion of Ukraine is showing no signs of a swift ending, signs of any form of resolution will see nickel come off the boil, although prices will remain high for some time.

“Once there’s some resolution or some clear path what that resolution will be of the Russian invasion of Ukraine, then you will probably see the nickel price come off some,” Christian said.

“At some point the price will come down, but we are still going to have very high nickel prices this year and going forward.”

These elevated prices will drive strong margins for Latin American producers, who include Brazilian mining giant Vale.

Solway Investment Group and Americano Nickel also have producing nickel mines in Guatemala and the Dominican Republic, respectively, while Horizonte Minerals is advancing its US$443mn phase 1 Araguaia nickel project in Brazil (in picture).

INDUSTRY FOCUS

And there are signs the industry was already paying special attention to nickel prior to last week’s spike.

Many of the top global mining companies signaled a strong focus on nickel at the BMO Global Metals & Mining Conference at the start of the month, with little attention paid to iron ore, the company’s commodities research analyst Colin Hamilton told BNamericas.

“The big guys [mining companies] didn’t talk iron ore much, but there was a lot of focus on nickel. Vale basically gave a nickel presentation. Clearly nickel is an area to focus on. This is the pivot to the future phase of commodities, as they like to term it.”

And Latin America – along with North America – may become an area of focus for its nickel resources as global markets look to make up for lost Russian supply.

“You will see a premium placed on equities of mining companies in safe, close home jurisdictions and you will see a discount relative to those companies for companies that have ties to China or Russia,” Christian said.