“A nickel ain’t worth a dime anymore.”
–Lawrence Peter “Yogi” Berra
Noted philosopher and Yankees legend Yogi Berra was reputed to have made that observation. (Although he also said “I really didn’t say everything I said.”)
But that might also be an accurate observation for an ore market whose price has been under pressure — thanks to an oversupplied market — for nearly the past three years.
But that’s about to change. And it could bring opportunities for miners who specialize in the ore…
An Under the Radar Metal
Nickel generally isn’t a metal investors hear a great deal about. But it’s extremely versatile with a wide range of applications and demand for it has been on the upswing. According to the International Nickel Study Group:
Usage of nickel has increased over time and is correlated with economic development. World nickel demand increased from 1.123 million tonnes (Mt) in 2000 to 1.465 Mt in 2010 and reached 2.385 million tonnes in 2020, with an annual average growth rate of 3.8% since 2000.
For starters, over 66% of nickel produced is used in the production of stainless steel.
Beyond that, nickel is also used in a number of various alloys.
Nickel-Copper alloys resist corrosion that would otherwise occur as a result of exposure to alkaline or saline solutions making them ideal for marine engineering and chemical processing equipment.
Nickel’s heat resistance limits its thermal expansion making nickel-iron alloys ideal for precision instruments including seismic gauges.
Again thanks to its high temperature resistance, various nickel-chromium alloys are used in jet engines and other exhaust systems.
Nickel-Titanium alloys exhibit “shape memory” that allows them to be used in medical devices like stents and orthodontic wires.
Bottom line is the metal is versatile enough that it allows for use in a wide variety of industries including aerospace, chemical processing, electronics and power generation — especially battery technology.
But while the demand for nickel stretches across industries, the vast majority is produced in one country… Indonesia. Based on data from the USGS in 2022, nearly one-half of the entire world output was produced by Indonesia. The next biggest producer only mined 20% of Indonesia’s output.
Restructuring Supply
As we mentioned earlier, the price of nickel has been under significant pressure for the past three years. Oversupply from Indonesia has been a chief reason behind it. As a result, mining operations have suspended operations and cut back on production.
It appears that that is about to change.
With that country’s outsized dominance over the industry, its production numbers are capable of having a global impact on the price of the ore. And this year Indonesia has announced a change in production…
The Energy and Mineral Resources Ministry is looking at lowering the amount of nickel ore allowed to be mined next year to 150 million tons, said the people, who asked not to be named as the deliberations are private. That would be a sharp drop from 272 million tons this year.
The cutback would represent a drop in production by over one-third over the year. And that big of a cut in supply would no doubt put upward pressure on nickel prices.
How much pressure?
There’s really no way to tell with any kind of certainty, but any increase in the price of the metal would likely make miners re-crunch their numbers. And that could also be a boon for the junior mining industry.
For one, higher ore prices would generate increased revenue potential of existing operations and the economic viability of projects being studied.
Higher prices could also attract more investment capital making funding projects easier.
And a sharp reduction in supply could offer a path for juniors to establish or expand their presence in the market.
It’s important to remember that there are a lot of factors that go into a successful junior mining operation.
But in a market so heavily impacted by a single source, it may be worth watching future developments.