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The thematic case for nickel

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5 år sedan

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25 mars, 2020

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Nickel has exciting long-term prospects as its use in electric vehicle batteries is expected to drive its demand growth in the future. This structural trend has however not immunised it against the recent headwinds facing industrial metals. Industrial metals are cyclical commodities and their performance is fuelled by global economic growth. The sector has therefore been under pressure from trade wars and, more recently, coronavirus. In this blog, we want to shift the focus back to nickel’s strategic case. We remain cognizant that the current storm is not over yet but expect a smoother sail once the existing headwinds subside.

Analysing nickel’s recent history

Nickel has strongly outperformed the industrial metals basket (composed of copper, zinc, aluminium and nickel) in the last 3 years (Figure 1). The sector has faced challenges since the advent of trade wars in 2018 both directly due to tariffs and indirectly via a resulting slowdown in global economic activity. Nickel too has had its share of price volatility during this time. The metal rallied sharply in July 2019 on the expectation that Indonesia, which produces a quarter of global nickel supply, will bring forward its nickel ore export ban by 2 years to January 2020. Indonesia announced this decision soon thereafter. Concerns of supply shortages drove the price in a market which was already in a deficit^[1]. Nickel’s fortunes reversed in the last quarter of 2019 as stainless-steel demand, which currently accounts for nearly two-thirds of the metal’s use, dwindled. The dynamics of the nickel market are however changing which is why we have an optimistic view of the future.

Nickel has outperformed — Source: WisdomTree, Bloomberg. Monthly data from 01/01/2017 to 03/01/2020. Industrial metals basket refers to the Bloomberg Industrial Metals Subindex.

Battery solutions to take a larger share of nickel

According to metal experts Wood Makenzie, battery solutions are expected to account for more than 30% of the total demand for nickel by 2040, up from around 4% today (Figure 2). This is because electric vehicles are forecasted to be around 50% of all passenger car sales by 2040, up from around 8% today. Batteries need to become more efficient to enable this growth and nickel is expected to play a pivotal role. According to the Nickel Institute, nickel containing Lithium-ion batteries are powering the electric vehicle revolution as nickel in batteries helps deliver higher energy density and greater storage capacity at a lower cost. This will allow electric cars to have both a longer range, i.e. the ability to drive longer distances without requiring a recharge, and lower cost promoting wider adoption.

Now, the impact on price from demand growth can, in theory, be offset by an equal increase in supply. We, however, believe that supply growth will be much slower as, according to Wood Mackenzie, the average time for a new nickel mining project to start producing the metal is around 9 years. Miners will seek higher prices to be incentivised to undertake such projects.

Electric vehicle market — Source: WisdomTree, Wood Mackenzie. Forecasts (F) from 2019. Forecasts are not an indicator of future performance and any investments are subject to risks and uncertainties.

It is uncertain how quickly the current headwinds facing industrial metals will dissipate. Having said that, the market dynamics of nickel are changing and the long-term outlook appears promising for the metal supported by a thematic shift towards electric vehicles which is being powered by nickel containing batteries. With the nickel market already in a supply deficit, we expect growing demand to support its price in the long-term.

Mobeen Tahir, Associate Director, Research, WisdomTree

^[1^] According to the International Nickel Study Group, nickel’s supply deficit was 6.2% in 2018, 3.2% in 2019 and forecasted to be 1.8% in 2020 relative to its demand based on data available as of 31 October 2019.

DISCLAIMER

This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.

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Saudi won’t break with OPEC+ to head calls for more oil from Trump

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3 dagar sedan

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28 januari, 2025

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Rebounding after yesterday’s drop but stays within recent bearish trend. Brent crude sold off 1.8% yesterday with a close of USD 77.08/b. It hit a low on the day of USD 76.3/b. This morning it is rebounding 0.8% to USD 77.7/b. That is still below the 200dma at USD 78.4/b and the downward trend which started 16 January still looks almost linear. A stronger rebound than what we see this morning is needed to break the downward trend.

Bjarne Schieldrop, Chief analyst commodities, SEB

Saudi won’t break with OPEC+ to head calls for more oil from Trump. OPEC+ will likely stick to its current production plan as it meets next week. The current plan is steady production in February and March and then a gradual, monthly increase of 120 kb/d/mth for 18 months starting in April. These planned increases will however highly likely be modified along the way just as we saw the group’s plans change last year. When they are modified the focus will be to maintain current prices as the primary goal with production growth coming second in line. There is very little chance that Saudi Arabia will unilaterally increase production and break the OPEC+ cooperation in response to recent calls from Trump. If it did, then the rest of OPEC+ would have no choice but to line up and produce more as well with the result that the oil price would totally collapse.

US shale oil producers have no plans to ramp up activity in response to calls from Trump. There are no signs that Trump’s calls for more oil from US producers are bearing any fruits. US shale oil producers are aiming to slow down rather than ramp up activity as they can see the large OPEC+ spare capacity of 5-6 mb/d sitting idle on the sideline. Even the privately held US shale oil players who account for 27% of US oil production are planning to slow down activity this year according to Jefferies Financial Group. US oil drilling rig count falling 6 last week to lowest since Oct 2021 is a reflection of that.

The US EIA projects a problematic oil market from mid-2025. Stronger demand would be the savior. Looking at the latest forecast from the US EIA in its January STEO report one can see why US shale oil producers are reluctant to ramp up production activity. If EIA forecast pans out, then either OPEC+ has to reduce production or US shale oil producers have to if they want to keep current oil prices. The savior would be global economic acceleration and higher oil demand growth.

Saudi Arabia to lift prices for March amid tight Mid-East crude market. But right now, the market is very tight for Mid-East crude due to Biden-sanctions. The 1-3mth Dubai time-spread is rising yet higher this morning. Saudi Arabia will highly likely lift its Official Selling Prices for March in response.

US EIA January STEO report. Global demand and supply growth given as 3mth average y-y diff in mb/d and the outright 3mth average demand diff to 3mth average supply in mb/d. Projects a surplus market where either US shale oil producers have to produce less, or OPEC+ has to produce less.

Global demand and supply growth given as 3mth average y-y diff in mb/d and the outright 3mth average demand diff to 3mth average supply in mb/d. — Source: SEB graph and calculations, US EIA data

Forward prices for ICE gasoil swaps in USD/ton. Deferred contracts at very affordable levels.

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Brent rebound is likely as Biden-sanctions are creating painful tightness

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3 dagar sedan

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27 januari, 2025

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Bearish week last week and dipping lower this morning on China manufacturing and Trump-tariffs. Brent crude traded down 4 out of five days last week and lost 2.8% on a Friday-to-Friday basis with a close of USD 78.5/b. It hit the low of USD 77.8/b on Friday while it managed to make a small 0.3% gain at the end of the week with a close that was marginally below the 200dma. This morning it is trading down 0.4% at USD 78.2/b amid general market bearishness. China manufacturing PMI down to 49.1 for January versus 50.1 in December is pulling copper down 1.3%. Trump threatening Colombia with tariffs.

Rebound in crude prices likely as Dubai time-spreads rises further. The Dubai 1-3mth time-spread is rising to a new high this morning of USD 3.7/b. It is a sign that the Biden-sanctions towards Russia is making the medium sour crude market very tight. Brent crude is unlikely to fall much lower as long as these sanctions are in place. Will likely rebound.

Asian buyers turning to the Mid-East to replace Russian barrels. Amin Nasser, CEO of Saudi Aramco, said that the new sanctions are affecting 2 out of 3.4 mb/d of Russian seaborne crude oil exports. Strong bids for Iraqi medium and heavy crudes are sending spot prices to Asia to highest premiums versus formula pricing since August 2023. And Europe is seeing spot premiums to formula pricing at highest since 2021 (Argus).

Strong rise in US oil production is a losing hand. A lot of Trump-talk about a 3 mb/d increase in US oil production. Occidental Petroleum CEO Vicki Hollub commented in Davos that it is possible given the US resource base, but it is not the right thing to do since the global market is oversupplied (Argus). Everyone knows that OPEC+ has a spare capacity of 5-6 mb/d on hand. The comfort zone is probably to have a spare capacity of around 3 mb/d. FIRST the group needs to re-deploy some 3 mb/d of its current spare capacity and THEN the US and the rest of non-OPEC+ can start to think about acceleration in supply growth again. Vicki Hollub understands this and highly likely all the other oil CEOs in the US understands this as well. Donald Trump calling for more US oil will not be met before market circumstances allows it. Even sanctions on Iran forcing 1.5-2.0 mb/d of its crude exports out of the market will first be covered by existing surplus spare capacity within OPEC6+ and not the US.

US oil drilling rig count fell by 6 to 472 last week and lowest since October 2021. Current decline could be due to winter weather in the US but could also be like Hollub commented in Davos arguing that US oil production growth is not the right thing to do.

1-3mth time-spreads in USD/b. Dubai to yet higher level this morning. Even Brent and WTI are rebounding. Could be some extra spike since we are moving towards the end of the month. But it is still indicating a very tight market for medium sour crude as a result of the latest Biden-sanctions.

US oil drilling rig count down 6 last week to lowest level since October 2021

Non-OPEC, non-FSU production to grow 1.4 mb/d in 2025. Third weakest in 4 years. Though still a bit more than total expected global oil demand growth of 1.1 mb/d/y (IEA)

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Brent testing the 200dma at USD 78.6/b with API indicating rising US oil inventories

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1 vecka sedan

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23 januari, 2025

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Brent touching down to the 200dma. Brent crude traded down for a fifth day yesterday with a decline of 0.4% to USD 70/b. This morning it has traded as low as USD 78.6/b and touched down and tested the 200dma at USD 78.6/b before jumping back up and is currently trading up 0.2% on the day at USD 79.1/b.

The Dubai 1-3mth time-spread is holding up close to recent highs. The 1-3mth time spreads for WTI and Brent crude have eased significantly. The Dubai 1-3mth spread is however holding up close to latest high. Indian refiner Bharat is reported to struggle to get Russian crude for March delivery (Blbrg). The Biden-sanctions are clearly having physical market effects. So, the Dubai 1-3mth time-spread holding on to recent high makes a lot of sense. I.e. it was not just a spike on fears.

US oil inventories may have risen 6 mb last week (API). Actual data later today. The US DOE will release US oil data for last week later today. The US API last night indicated that US crude and product stocks may have risen close to 6 mb last week. This may be weighing on the oil price today.

Brent and WTI 1-3mths time-spreads have fallen back while Dubai is holding up