When people think of industrial metals, they usually think about steel and copper. They don’t normally think about another important metal …
And yes, the U.S. Jefferson nickel IS made of nickel. Rather, at least 25% of it is … with the rest made up of copper.
Nickel is used in coins because of its first bullish factor: it’s a good plating material for other metals since it resists corrosion even at high temperatures.
Its second bullish factor is that nickel is also a primary ingredient in stainless steel.
Which means the rebound of China’s economy — along with infrastructure spending and rising inflation in the aftermath of the pandemic — should lift the base metals, nickel included.
The third factor nickel has in its favor …
Nickel is used in rechargeable nickel-cadmium batteries, and in nickel-metal hydride batteries used in hybrid vehicles like the Toyota Motor Corp. (NYSE: TM) Prius and the Kia Niro.
But it’s the growing electric vehicle (EV) market that could have the biggest impact on demand. And the “recipe” of EV energy cells is continually evolving.
Previously, most cathodes — the most valuable part of an automotive-grade lithium-ion battery — contained equal parts of nickel, cobalt and manganese. Now they have eight parts of nickel to each one part of the other two metals, because more nickel leads to a higher energy density.
In other words, without nickel, there’s be no “zoom” in the EV boom.
While electric vehicles consume a much smaller amount of nickel than traditional industries like stainless steel makers, nickel consumption in EV batteries is expected to soar 64% between 2019 and 2025, according to research firm Wood Mackenzie, which adds that satisfying this demand could be challenging.
A recent article by analysts at future Net Zero said the sustainable nickel supply is becoming a “serious issue” for the EV market. The article said that EV powertrains are putting “sudden and unprecedented strain on several raw materials industries” … especially nickel.
BMW, Hyundai and Renault use variants of a Lithium Nickel Manganese Cobalt Oxide (NMC) mixture, while Tesla Inc. (Nasdaq: TSLA) uses a Lithium Nickel Cobalt Aluminum Oxide (NCA) chemistry.
As the demand for EVs grows, the need for nickel is steadily rising, while supply is lagging.
According to Michael Beck, Managing Director at Regent Advisors, it takes seven to 10 years to bring new nickel mines into production. This fundamental equation means there will likely be a significant deficit in the nickel market for at least the next twelve years.
In August, Tesla’s Elon Musk said this:
I’d just like to re-emphasize, any mining companies out there, please mine more nickel. Wherever you are in the world, please mine more nickel and … go for efficiency, obviously environmentally-friendly nickel mining at high volume.
A Tesla Model 3 currently contains around 30 kilograms of nickel, and Musk has been negotiating with the Australian giant, BHP Group Limited (NYSE: BHP) for long-term supply.
Eduard Haegel, asset president for BHP’s Nickle West, told Australia’s Diggers and Dealers forum …
No matter what metals (or combination of metals) are tested in lithium-ion battery cathodes, nickel produces the highest energy density of any. This is an insight for why nickel has such a positive future. It is the workhorse of the lithium-ion battery.
Other key suppliers are Brazil’s Vale S.A. (NYSE: VALE), which operates in Canada using environmentally-friendly hydropower … and Russia’s Norilsk Nickel (OTCPK: NILSY), the world’s largest producer.
Here’s another thing …
Monetary and fiscal policies worldwide with the COVID-19 pandemic are even more extreme than in 2008 … and that’s lifting commodity prices. And it’s a sign that all raw materials are likely to experience a dramatic bull market in coming years. For nickel, we could be on the verge of a perfect bullish storm!
Any pullbacks in nonferrous metals prices would create an opportunity to load up on the metal.
But investing in the metal itself is a bit trickier than investing in physical gold, silver or even copper.
Aside from holding several tons in your garage, the London Metals Exchange (LME) is the most direct route.
But for U.S. investors, the easiest way is with the iPath Series B Bloomberg Nickel Subindex Total Return ETN product (NYSE: JJN).
Looking at the chart, you can see that JJN has rallied steadily since the March lows. Now, it is up against overhead resistance.
Anyway, JJN averages volume of under 4,000 shares a day, so it might be easier to buy one of the miners. One of the rules of investing is it’s important to think about your exit before you enter any trade.
All the best,