Base metals, Commodities, Features, Nickel

The nickel outlook: Three companies to keep an eye on

nickel

We take a trip down memory lane to unpack the origins of nickel and explore the current outlook for the commodity.

Nickel’s origins can be traced back to 3500BC, but it was Swedish chemist Axel Cronstedt who identified and isolated nickel as an element in 1751. 

Prior to this, miners in 15th century Germany found a brown-red ore they believed to contain copper. They called it Kupfernickel, or Devil’s copper, because they couldn’t recover copper from it. 

Today, 68% of nickel production is used to produce stainless steel, but in recent years the growing demand for batteries, especially for use in electric vehicles, has seen the commodity establish a base to support rising prices. 

The history of nickel shows that it is common for it to experience large price swings. The price gained over 600% over a 12-month period in 1987–88, and between late 2001 and the end of 2003 the price rose 283% to pause and consolidate before continuing higher in late 2005 until it reached its peak in 2007, adding another 373%. 

From early 2012, the price began building a base with a low point around $US7700 achieved in February 2016. The price began rising steadily within a volatile fashion to complete the base in January 2021. 

Oscillating within an upward path, it wasn’t until early 2022 that the price catapulted higher in frenzied trading. 

It appears that unprecedented low trading volumes triggered a liquidity crisis. Nickel futures screamed to a high at $US100,000 in early March amid a short squeeze. This occurred because one of the world’s top producers, China’s Tsingshan Holding Group, had to hedge its short position in the metal. 

Returning to the London cash price, we find that it took off in January this year to gain more than 135% in three months. But if we use the low in March 2020, we find that the metal rose over 336% within the two years to March 2022. 

Nickel’s history shows it’s common for it to experience large price swings.

Taken in perspective of the metal’s history, the gains seen recently are not uncharacteristic and the short squeeze provided the final impulse. 

It must be mentioned that the global uncertainty due to the ongoing Russia–Ukraine conflict has had a significant impact on commodity prices and more volatility can be expected in the nickel price.

The price dropped back from the March highs to $US27,712 in early May before a deeper pullback had the commodity trading just above $US20,000 as of late July.

However this may prove to be half-way breather in the upswing with the prospect of significantly higher prices in the medium-to-longer term.

GME Resources’ NiWest project is appraised as one of the largest and highest quality undeveloped nickel–cobalt resources in Australia. The project is located in the West Australian nickel belt, adjacent to Glencore’s Murrin Murrin nickel–cobalt operation. 

The share price for GME Resources has closely tracked nickel. The stock rose in line with the nickel price between 2003 and 2007, with the swings becoming more compact from 2009 as the price developed an extended base. From the beginning of 2022, however, the price has moved up strongly again in line with nickel in what may be an attempt to complete the base.

This may be delayed as the price pauses beneath resistance from $0.13 up to $0.18. Support during the pause phase is located above $0.09 and in the case of a deeper pullback in the $0.06–0.07 area. 

Once the pause is completed in conjunction with the base, with a confirmation rise through $0.23, the stock would gain the potential to head towards $0.35 and then $0.50 and potentially higher. A drop below $0.06 could return the price to its previous compact range.

GME was trading at $0.098 as of July 26.

GME Resources’ share price has closely tracked the nickel price.

Legend Mining is focused on its Rockford Project, which is located in the highly prospective Fraser Range district of WA. The project has an area totalling over 3000km2, with exploration primarily for magmatic nickel, copper and cobalt. There is also zinc, copper and silver in the volcanogenic massive sulphide style, and tropicana style structurally controlled gold mineralisation.

From the end of 2010, the price for Legend has moved ahead of the nickel price, finding a low point in June 2014 at $0.06 and completing the first stage of its base in December 2017. The price continued to follow a volatile upward path, taking it to $0.66 by mid-2018, where it pulled back to support above $0.03 to then surge higher to reach a high point at $0.21 in April 2020. 

The price became overheated at this point and fell into decline. The downswing steepened in 2021 until the price found a turning point at $0.48 in December 2021.

The price rallied strongly but was hampered by resistance in the $0.10–0.12 area. The short-term momentum has diverged, suggesting the price may need to consolidate under the barrier. 

Support is located around $0.06 and then, more importantly, in the $0.045–$0.05 area. A breakaway through $0.12 would suggest a rise towards $0.14–0.15 and then $0.20, but potentially towards $0.50.

Legend Mining was trading at $0.05 as of July 26.

Another company of note is Jervois Mining, which aims to become the leading global supplier of responsibly sourced cobalt and nickel materials for the battery and chemicals markets, and to provide a secure, reliable supply to customers in the face of geopolitical risks.

In March this year the share price broke a long-term downtrend drawn from the late 1990s, confirming the upward path from the lows in mid-2013 in doing so. 

The price pulled back from resistance around $1.00 with support in the region of $0.70, with the possibility of dropping back towards $0.60 before the upswing resumes towards its barriers which extend to $1.50 and $2.00, but with the prospect of higher prices.

Jervois was trading at $0.40 as of July 26. 

This feature appeared in the June issue of Australian Resources & Investment.

* The article has been updated to reflect current market conditions on July 26, when the article was published online.

Words by Regina Meani.

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