Nickel Outlook 2017: Supply Crunch Ahead

After a troubled 2015, nickel surged in 2016. Analysts provide their forecast for the upcoming months.

After a troubled 2015, nickel surged in 2016 together with other base metals, supported by the credit-fuelled construction boom in China and Trump’s potential infrastructure plans that could increase demand in the upcoming months.
To add to a rising demand, nickel supply could tighten due to production cuts in the top producing country Philippines, as a result of mine suspensions due to environmental concerns.
Analysts’ forecasts remain positive on nickel for 2017, with many predicting that it could become one of the best performing commodities of the year and comparing it to zinc’s surge in 2016.

Price Rebound

In 2015, LME three month nickel was the worst performer with losses of over 40 percent. At the beginning of 2016 nickel hit a 12-year low, on the back of concerns about high inventories, dropping to $8,120 a tonne in January and even further in February to $7,580 a tonne, its lowest since 2003.
But nickel prices started to rebound in the second half of the year, as environmental concerns led to an audit in the world’s largest producing country, the Philippines that ended up in mine’s production suspension. By the end of the year the base metal was trading at $10,010 a tonne.
Nickel still has upside potential, Cliff Smee, head of research and analysis for mining at GlobalData, told the Wall Street Journal.
“Growth is supported by rises in the population and urbanization in emerging economies such as China and India, which are expected to invest heavily in upgrading infrastructure and expanding industrial and output capacity,” Smee said.
After base metals rallied in the last quarter of 2016, many banks and analysts raised their 2017 forecast for nickel. Morgan Stanley increased its estimated price by 13 percent to $11,657 a tonne.
“Most of the base metals are back at the top of our list,” analysts added.
According to Wood Mackenzie, the nickel upward trend will continue in the first half of 2017 as ore stocks in China approach depletion point in March-April.
In addition, Citigroup predicted that most raw materials are expected to perform strongly next year.
“For commodities in general, the oversupply that was induced by high prices in the first decade of this century are finally being balanced,” analysts led by Ed Morse said.
Goldman Sachs also said investors should bet on higher commodities prices as manufacturing picks up around the world, the first time the bank has recommended an overweight position in more than four years.
“Supply restrictions from policy actions should benefit oil, coking coal and nickel in the near term while economic reductions should boost natural gas and zinc,” analysts led by Jeff Currie said.

Demand: China and Trump

The latest Metals Balances report released by the World Bureau of Metals Statistics stated that refined nickel consumption during the first ten months of 2016 surged higher by 104,900 metric tonnes compared to the previous year.
According to a report from the Economic Times, the spot nickel market is seeing a trend of increased demand from alloy makers and other industries that consume the metal.
“People are beginning to see that the demand side of the equation is going to be better than expected,” Bill O’Neill, a founding partner at Logic Advisors in Upper Saddle River, New Jersey, said to Bloomberg. “There’s still optimism of more infrastructure spending. That’s playing into higher prices.”
According to Wood Mackenzie, the ongoing ramp up of new stainless melting capacity in China warranted a substantial increase in their demand forecasts.
“Despite the new NPI production in Indonesia, the nickel market will end 2016 in deficit and it is still expected to remain undersupplied through to 2020,” they said.
After the US election results, the nickel market saw the most prominent response, with daily LME cash prices increasing by 7.4 percent between November 7th and November 11th, according to CRU.
“We anticipate continued volatility in western alloying metal markets as sentiment swings in response to new policy announcements,” they added.
Last December, Morgan Stanley said that Trump’s promise to rebuild U.S. infrastructure was a brand-new upside risk for their commodity outlook.
“Yes, we do believe China is in the mature stage of its 25-year-old materials growth cycle, and that the U.S. may only be at the start of a new one. But the potential exists for a medium-term competitive overlap for selected commodities,” they said.
The International Nickel Study Group reported that, despite the challenging economic environment, world nickel usage will continue to grow in both 2016 and 2017 due to the increase in production of the austenitic stainless steel grades in all main markets.
“In the non-stainless steel sectors primary nickel demand will maintain a positive trend in the aerospace industry and in the battery sector,” they added.

Mine Closures Impact

The Philippines accounts for about a quarter of global mined nickel supply, with most production going to China. In 2016, eight nickel mines have been suspended, with another 14 put on notice.
Leo Jasareno, director of the Mines and Geosciences Bureau, told Reuters that the suspensions followed “various complaints of environmental degradation,” adding they would be in effect until the companies complied with conditions set by the agency.
These suspensions will have a significant impact on nickel’s supply since Indonesia, the largest producer of mined nickel, has made it clear that it will not relax its export ban on nickel ores, which has been in place since January 2014.
Eduard Haegel, asset president of BHP’s Nickel West unit, said: “There are signs that this year could be finally the turning point for nickel with many expecting the market to be in deficit and so starting the much needed re-balancing process,
“The welcome return to balance over the next few years should see further recovery in nickel prices.”
The INSG reported that world primary nickel production was 1.973Mt in 2015, and decreased to 1.934Mt in 2016. They project an increase in production to about 2.047Mt in 2017, but they warn about possible production disruption that could impact the market.
In addition, Macquarie expects the global nickel deficit to increase to 93,000 tonnes in 2017 from 67,000 tonnes this year.

Investor Takeaway

It seems nickel prices could continue to surge next year, supported by increasing demand from China and infrastructure policies, yet uncertain, from incoming US President Trump. Investors should pay attention to how the base metals’ supply might tighten as mine suspensions continue in the Philippines. The next few months might be interesting for nickel, as analysts agree that the base metal could be on track to become the next best performing commodity in 2017.
Don’t forget to follow us @INN_Resource for real-time news updates!
Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

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Catch up and get informed with this week's content highlights from Charlotte McLeod, our editorial director.

Top Stories This Week: Powell Gets Fed Nomination, Using Gold in a Market Correction youtu.be

We're back after a break last week with quite a bit to cover in the gold space.

After running up past the US$1,860 per ounce mark midway through November, the yellow metal has taken a tumble. At the time of this writing on Friday (November 26) afternoon, it was sitting just under US$1,790.

Gold's losses this week have been attributed to elements like a stronger US dollar and better Treasury yields, although Jerome Powell's US Federal Reserve chair renomination has pulled other factors into play — some market watchers believe he may move to taper and raise interest rates faster than anticipated.


If the Fed follows its previously laid out timeline for tapering, it will wrap up in mid-2022; the central bank has said it won't raise rates until after that. It has also emphasized that its roadmap may change if necessary.

Looking at the larger picture for gold, I heard recently from Nick Barisheff of BMG Group, who believes the stock market is due for a major correction.

"The market is due for a major correction. What will cause it and when it will happen is anybody's guess — it could be tomorrow, it could be six months from now" — Nick Barisheff, BMG Group

It's impossible to know when this correction will happen, but Nick emphasized the importance of acting before it's too late. He pointed out that investors are typically slow to get out of the market once a crash actually begins — they wait for a turnaround, and by the time it's clear there won't be one, they've experienced big losses.

In his opinion, the solution is to get out of the stock market early and transfer money into gold.

Here's how Nick explained it:

"Instead of taking your money off the table and going into cash … you go to gold (because cash is devaluing daily). Gold will at least hold its own and probably appreciate … so by sitting it out in gold you can wait until the market finishes correcting and then buy back in" — Nick Barisheff, BMG Group

With gold's future in mind, we asked our Twitter followers this week what price they think the metal will be at the end of 2021. By the time the poll closed, most respondents had voted for the US$1,800 to US$1,900 range.

We'll be asking another question on Twitter next week, so make sure to follow us @INN_Resource or follow me @Charlotte_McL to share your thoughts.

Finally, in the cannabis space, INN's Bryan Mc Govern spoke with Dan Ahrens of AdvisorShares to get his thoughts on 2021 trends and what's ahead in 2022.

Dan was candid, and said if he had to choose one word to describe the cannabis market in 2021, it would be "painful." Like many others, he's been disappointed in the industry's performance — while positivity initially ran high due to excitement about potential federal changes in the US, ultimately progress has been slow.

"Cannabis started with a big run-up in January and February ... and things dragged from there" — Dan Ahrens, AdvisorShares

Still, Dan has hope for 2022 and said it will be a "huge year" for cannabis. He believes US reforms will come sooner rather than later, and in his opinion those widely anticipated changes will bring a wave of M&A activity.

Specifically, he expects to see alcohol, tobacco and other consumer packaged goods companies making deals with cannabis players, not just cannabis entities doing transactions with each other.

"Those big alcohol companies, tobacco companies, other consumer packaged goods product companies — they're waiting. They're waiting on the US" — Dan Ahrens, AdvisorShares

Want more YouTube content? Check out our YouTube playlist At Home With INN, which features interviews with experts in the resource space. If there's someone you'd like to see us interview, please send an email to cmcleod@investingnews.com.

And don't forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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Dmytro Tyshchenko / Shutterstock

Catch up on some of the biggest news of the week for the cannabis investment world.

Three political parties have formed a coalition in Germany, leading to a new government, and it has promised cannabis reform in the European nation.

Meanwhile, a popular cannabis retailer confirmed consumers will now find its products available for delivery on the Uber Eats mobile application in Ontario.

Keep reading to find out more cannabis highlights from the past five days.


Coalition of parties promises forward-looking cannabis policy

Germany, a country with comprehensive and elaborate medicinal rules for cannabis, is in a time of transition as a new government is set to begin to take over after 16 years of Angela Merkel.

Olaf Scholz, the proposed next chancellor of Germany, leads a three party coalition that will become the country's governing body. As part of its promises, talk of adult-use cannabis regulation has now gained even more momentum. A report from MJBizDaily quotes a German policy document that shows the coalition's stance:

"We are introducing the controlled distribution of cannabis to adults for consumption purposes in licensed shops. This controls the quality, prevents the transfer of contaminated substances and guarantees the protection of minors."

However, despite the promise and excitement, it remains to be seen how these ideas will be applied since no formal regulations have been drafted or approved yet.

Canadian cannabis retailer partners with popular delivery app

Tokyo Smoke, a cannabis retail operator in Canada owned by Canopy Growth (NASDAQ:CGC,TSX:WEED), announced a collaboration agreement with Uber Canada (NYSE:UBER) whereby cannabis consumers will be able to use the Uber Eats app to order products before they visit stores.

While the app won't let consumers get cannabis delivered to them, this new method opens the doors to more dynamic ways of buying cannabis.

"As a market leader in innovation and a platform used by so many Canadians, we believe this is the ideal next offering that can be done safely and conveniently on the Uber Eats app," Mark Hillard, vice president of operations with Tokyo Smoke, said in a press release.

A report from the Canadian Press indicates Ontario is considering allowing dispensaries to have delivery and pickup options made available to consumers permanently. The province allowed some of these purchasing options at the outset of the COVID-19 pandemic, but then removed them.

Lola Kassim, general manager of Uber Eats Canada, said this new end-to-end experience will provide consumers with responsible access to legal cannabis products.

Cannabis company news

  • Organigram Holdings (NASDAQ:OGI,TSX:OGI) issued financial results for its Q4 2021 period. In its report, the company notes a net loss of C$26 million despite a 22 percent uptick in net revenue to C$24.9 million. Beena Goldenberg, the newly appointed CEO of the firm, is encouraged by the market share position earned by the company, which said it became the fourth biggest producer in Canada during the reporting period.
  • Halo Collective (NEO:HALO,OTCQB:HCANF) confirmed the decision for Akanda, its spinoff company focused on international cannabis opportunities, to begin trading on a US exchange. "The number of shares to be offered and the price range for the proposed offering have not yet been determined," the company told investors in a press release.
  • High Tide (NASDAQ:HITI,TSXV:HITI) announced the acquisition of 80 percent of NuLeaf Naturals, a CBD product wellness developer, for an estimated US$31.24 million. The deal includes a three year option clause for High Tide to complete a total acquisition. "As international markets open up and as export regulations evolve, NuLeaf's cGMP-certified facility positions us to take advantage of the global CBD business opportunity," Raj Grover, president and CEO of High Tide, said.
  • Humble & Fume (CSE:HMBL,OTC Pink:HUMBF) released the financial report for its first 2022 fiscal quarter to shareholders and the market. "As the legal cannabis market in North America continues to mature, Humble remains agile and focused on providing a leading solution for brands to scale quickly and retailers to focus on their customers," Joel Toguri, CEO of Humble, said.

Don't forget to follow us @INN_Cannabis for real-time updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

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