Metals Roundup Jan ’24 Aussie Nickel not worth a Nickel
Image: Todd Trapani
TL;DR
For January, we had a smorgasbord of bases, bulks and EV minerals activity:
Metals and equities markets finally priced in what we had been seeing in the nickel processing space for the past couple of years, i.e., the Indonesian laterite nickel takeover which has resulted in high cost mines and one refinery shutting down.
A lukewarm start to the year for copper which had its face ripped off and served cold last year.
Moderating iron ore prices.
Lithium wars.
Alcoa alumina refinery shutdown.
All in all, it was a tough start to the year.
Iron ore’s comeback moderated. The still vibrant net-zero camp unloaded more of its fury on coal and transitional stalwart LNG, and China’s ‘positioning’ pounded the crap out of lithium on one hand, and on the other enabled a long-term market for Indonesian nickel.
Lack of demand in places as well as over-supply in other places has resulted in a continuation of commodity price deceleration, particularly in critical base metals.
And regardless of the recent (and somewhat narrow) equities rally, the USD is still too strong to launch a mineral commodities super cycle.
A still high cost of capital, relatively restrictive interest rates, USD strength, geopolitics, Red Sea events and a very tired Dragon continue to stall the next commodities summer.
In October 2023 I wrote:
That probably means lower base metal prices well into 2024. That’s my base case, but as we know scenarios assume all other things remain equal, and that hardly ever happens.
Well, still, no change other than for it getting a whole lot worse for nickel and lithium.
Here are the charts 👇👇👇
1. Base Metals
Nickel
Nickel was the big story, or non-story, given the ripple effects from the Sino-Indonesian nickel takeover that’s been building for some time.
Essentially, Indonesia is the biggest producer of nickel (~10x that of Australia) with most of it being laterite.
You might recall (or maybe not) that the inability to adequately process lateritic ore sank Anaconda’s Murrin Murrin project (now owned by Glencore) in the 1990s. It also challenged the development of many nickel laterite/cobalt deposits in Australia and New Calledonia.
It was another interesting time in nickel’s history which I remember well. Back in the early 1990s I was an equity underwriter in a prominent stock broking/investment banking firm. Our trading desks were frothing and foaming over what promised to be Poseidon Nickel Boom 2.0.
But, as if often the case, new shiny things are more often than not over-promoted. And back then nickel sulphides were way easier to treat than the shiny new laterite/cobalt ore deposits and ultimately many of these mega projects failed.
Well, times have changed. Which is to say that China has been investing in ore processing technology and now has the capability to process laterites into battery grade nickel for China produced EVs.
I have no doubt certain quarters will continue to attack Indonesia’s ESG credentials and its ‘less than Australian quality’ nickel, and that domestic players will continue to lobby for Government assistance - but the Dragon’s decisions in this critical area are unlikely to be informed by ESG and/or any comments from Penny Wong.
So far, this takeover by Indonesia and China has ripped a fair portion of the China nickel demand trade away from Australia and others.
More recently, some Australian producers and a refinery have shut down, and nickel bulls have headed for the exit. Nickel developers are also in a world of pain with financing terms being withdrawn in some cases.
Some of the casualties include Chalice (Gonneville), BHP (via Nickel West), Wyloo, First Quantum (Ravensthorpe), Panoramic Resources and IGO (Cosmos). There bound to be more to come.
Enough said.
Others
Cyclical headwinds remain for other base metals.
Interest rates and the USD are still high and conjecture over when rate cuts would start was still in play in January, even though we now have some guidance that cuts are off the table until May/June in the U.S., and even the RBA has continued on pause (as of yesterday) as have the ECB and the BoE.
Also in January, China’s Evergrande was allowed to collapse, and more domestic property developers noted leverage stress. China demand and unresolved property market leverage/stress as well as sub-optimal stimulus are all still bearish for copper (and for bulks, see section 2).
In total, January’s base metals index (aluminium, nickel, copper, etc) printed a mere o.2% acceleration which is not in my books a reversal of what is now a 12-month price deceleration trend 👇👇👇 with more pain to come in nickel.
Plus, you might have noticed copper stocks coming off, again.
Finally, Alcoa announced a phased shutdown of its Kwinana alumina refinery, predominantly due to disrepair and age, which was not an unknown 🤦♂️
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2 Bulk minerals - inch by inch 📅👷♂️🏗👷♀️
Oops - prices didn’t grow at all in January.
September’s 12% acceleration is now most definitely the outlier.
Evergrande would not have been helping bulks.
Also notable was a drop in coal prices as the ESG and net zero camp continued to call for an end to fossil fuel despite there being nowhere enough renewables capacity to switch on the lights. WT?
Lastly, China’s demand trajectory, centralised iron ore buying, and % self-sourcing acceleration continue to cast a long and complicated shadow 👇👇👇 over bulks, and frankly Indian demand is still not ready to take over from the China impulse.
Copyright, NextLevelCorporate Advisory
3. Energy minerals, a tale of two cities
The July 6, 2023, price high for LME Lithium Hydroxide CIF was US$46,046.
Today, it sits at US$13,250 which is 20% down in less than a month and a total of 71% down from July last year.
Lithium, nickel and still copper remained out of favour in the first month of the new year.
Relative to the GFC-to-COVID years, the cost of capital is still high, the USD is still strong, and China peaked some time ago. So, it will take more time to see these price decelerations unwind.
A couple of days ago, uranium hit US$106/lb. Please sir, I want some more.
4. Key takeaways from January 2024
China’s innovation effort/expenditure and ability to process nickel laterites from 10x-producer Indonesia has proven to be a stake in the heart for the Australian nickel industry.
Moral for Australia? Innovate, before it’s too late. Broaden the economic base by automating it. Stop cracking, stacking and shipping our natural resources endowment without value adding it.
Moral for you and me? Elect a government that’s going to incentivise technology/innovation as opposed to reacting to disasters with emergency meetings, royalty reductions, bail outs and generally reactive rubbishy policy.
And FFS, increasing the sophisticated investor threshold requirement is not going to increase investment in mining (or any other) technologies.
Labour’s recent bad policies are no way to accelerate investment in world beating technologies that might enable a broader economic base - if you do bad policy like that, the world beats you - like Indonesia just did.
Metals round up will return in the first week of March. Until then, see you in the market.
Mike
Next Level Corporate Advisory is a leading Australian corporate development advisor specialising in M&A, investment, financing and exit solutions. With a dealmaking track record spanning three decades, we help family, private and publicly owned entities develop and realise value in their businesses and investments.
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