Commodity exports have been key piler of Russia’s economy. Amid Russia’s invasion of Ukraine, prices of several commodities have surged on fears of supply disruption. Nickel joined the ranks of metals hitting their all-time highs.
Nickel prices more than doubled and topped $100,000 a ton in an epic short squeeze. The LME had to halt trading in the base metal, which is critical for EVs. What are the best nickel stocks and should you buy them now?
Soaring nickel prices could hit EV companies.
Automakers have been worried about securing supplies of key inputs for electric cars. So far, the discourse was mainly about cobalt, lithium, and copper. Nickel has been in a structural surplus as the supply has been in excess of demand.
The nickel market was expected to be in a surplus in 2022. However, Russian President Vladimir Putin’s invasion of Ukraine has complicated the picture. Russia is the world’s third-largest nickel producer. The country’s nickel exports are now under a scanner as the West continues to impose crippling sanctions on Russia.
Nornickel is the largest nickel producer.
Nornickel, which is a Russian company, is the largest nickel producer in the world. It's also the largest palladium producer. Palladium is used as a catalytic converter and is mainly used in diesel cars.
What are the largest nickel producers?
According to Mining.com, Brazilian mining giant Vale is the second-largest nickel producer globally. London-listed global mining and trading giant Glencore is the third-largest producer, while BHP Billiton and Anglo American are the fourth and fifth-largest producers globally.
While these companies are the biggest nickel producers, they aren't nickel plays in the true sense. For example, BHP Billiton and Vale get most of their revenues from iron ore. Copper is the key driver of Anglo American’s earnings, while copper and zinc account for the bulk of Glencore’s earnings.
Simply put, if you're looking at nickel stocks, these stocks might not fit the bill. While they produce a lot of nickel, the metal’s contribution to their earnings is quite small and so is their sensitivity to nickel prices.
What are some pure play nickel stocks for investors to consider?
While looking at nickel stocks, it would be prudent to look at companies that have a high share of nickel in their production mix. Talon Metals, which is a base metal company in a joint venture with Rio Tinto, is one such name.
Talon Metals is developing the Tamarack Nickel-Copper-Cobalt Project located in central Minnesota. However, since the mine is still in the development phase, it isn't making revenues and wouldn't benefit from the short-term spike in nickel prices.
Canada Nickel is another such play and is working on nickel and cobalt projects. While these companies are good long-term nickel plays, they aren't bets on the short-term spike in nickel prices.
Glencore looks a good stock to play EV transition
Looking at the current commodity price environment, Glencore looks like a good stock. It has high exposure to EV-grade metals like copper and nickel. Also, the company’s coal operations would stand to benefit from higher prices.
As for nickel, prices seem to have run ahead of the fundamentals and should eventually taper down. Pure-play nickel stocks are at a higher risk of falling if nickel prices come crashing down.