BNC is nickel price conundrum

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Bindura Nickel Corporation (BNC) may have to rethink its smelter restart plans given the poor outlook of global nickel prices.

Initially, the smelter project was halted owing to low nickel prices, which made the plan unsustainable.

Twelve months ago, nickel prices hit a 16-month high of US$16 000 per tonne on the London Metals Exchange (LME).

At the time, market watchers even forecast the price to climb to US$70 000 per tonne over the next three years.

However, due to Covid-19, base metal prices in general have taken a knock.

Global economic data aggregator, Trading Economics, projects a significant decline in prices by year-end.

“Nickel is expected to trade at US$13 051 per tonne by the end of this quarter,” according to Trading Economics global macro models and analysts’ expectations.

“Looking forward, we estimate it to trade at US$11 406/t in 12 months’ time.”

Stockbrokers and market analysts Morgan & Co say the weakening nickel price may not be entirely caused by the pandemic, as anticipated increased demand due to electric vehicles (EVs) may not be as significant as expected.

“While the EV story has been cited as one of the drivers of nickel prices going forward, nickel demand from the electric car market will largely be dependent on the selection of energy storage technology, which is still to be decided by the major PEV manufacturers.

“Nickel is likely to form part of the cathode of choice. However, this is then a function of how large the battery will be in the respective vehicles,” said Morgan & Co.

“We note that nickel is generally the weakest of the so-called battery metals. Only 6 percent of output goes into batteries and nickel is still mainly a steel play (more than two-thirds is used in steel). Nickel is more tied to outlook for China’s economy.”

Nickel is essentially used by China to make nickel pig iron (NPI), a raw material for stainless steel production.

Commodities experts Wood Mackenzie have predicted an increase in nickel demand from EVs from 128 kilo tonnes (kt) last year to 265 kt by 2025 and 1,23t in
2040.

However, over that period the share of global nickel demand taken by EVs is expected to increase from only 4 percent in 2018 to 31 percent in 2040.

Growth in demand for nickel from EVs will take a long time to reach sustainable levels as a result.

For BNC’s short- to medium-term goals, this time span is too long.

Analysts S&P Global Economics have also lowered their short-term nickel price expectations.

“(W)e continue to expect the pandemic’s impact on global primary nickel demand to overcome supply-side support from
the additional negative pressure that the Philippine mining suspensions will have on China’s primary nickel output,” they said.

“In our Nickel Commodity Briefing Service report for April, we increased our forecast for the 2020 primary nickel market surplus to 48 000 tonnes from 11 000 tonnes previously, which would be the market’s first surplus since 2015.

“We, therefore, further slashed our 2020 average LME three-month nickel price forecast to US$11 915/t from US$12 036/t, a decrease of 14,7 percent year-over-year.”

BNC had earlier hinted that the rationale for the smelter was the need to get higher prices of nickel in leach alloy than nickel concentrate, including potential for an increase in revenue by between 15 and 20 percent per tonne.-sundaymail.co.zw

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