Gold and silver are grabbing all the headlines at the moment, but there may be a bigger metals story out there.
A new X-factor has arrived on the scene, and it will power a massive demand for this sector of the metals market.
This X-factor is energy storage — also known as batteries …
As the world increasingly adopts technologies like electric vehicles (EVs) and renewable energy, batteries become the foundation that makes it all possible.
For example, a rapidly growing number of utilities around the globe are adding energy storage systems to their solar and wind projects. These systems — essentially great, big batteries — store the excess electricity that these projects produce when the sun is shining or the wind is blowing.
The utilities can then feed that stored energy into the electricity grid as needed. This ability to capture and store energy for later use enables solar and wind projects to deliver electricity much more efficiently.
But this “stationary storage” is just one small slice of the overall market for batteries. EVs will lead the coming demand surge for batteries.
The soaring popularity of Tesla Inc. (NASDAQ:TSLA) automobiles, along with the company’s high-flying share price, is showing the world that there’s a new kid in town …
Let me show you what I’m talking about …
“Please Get Nickel”
Energy storage and batteries are not only revolutionizing personal mobility and our sources of power. They are also making a big splash in the industrial metals markets.
This story is not entirely new, but it continues to produce new twists and turns … like the moment about a month ago when Elon Musk, Tesla’s founder and CEO, implored the world’s mining companies to boost their nickel production. Said Elon:
I’d just like to reemphasize, any mining companies out there, please mine more nickel. Wherever you are in the world, please mine more nickel and don’t wait for nickel to go back to some high point that you experienced some five years ago or whatever, go for efficiency … Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way. So, hopefully, this message goes out to all mining companies. Please get nickel.
Musk’s offhand comment echoed a previous comment from Sarah Maryssael, global supply manager for battery metals at Tesla, when she stated, “Tesla expects global shortages of nickel, copper, and other EV battery metals due to underinvestment in the mining sector.”
For the moment, nickel supplies are sufficient to meet current demand. But industry insiders expect a growing supply deficit to develop in the nickel market within the next two or three years.
“There has been a surge in demand for nickel sulphate in recent years,” notes Andrew Mitchel, head of nickel research at Wood Mackenzie. “Global consumption increased by 28% in 2019, primarily driven by the electric vehicle (EV) market. And as the EV revolution gathers speed, demand for battery materials will accelerate.”
The resulting demand growth for nickel could be mind-boggling.
Bloomberg New Energy Finance (BNEF) expects total global nickel demand to jump about 16-fold from 2018 levels to 2030. Based on that forecast, the research group states that even a doubling of nickel production capacity through 2030 would not be sufficient to satisfy demand.
Clearly, EVs will drive most of the demand growth. After all, the average EV contains about 45 pounds of nickel. So as EV production ramps up over the next few years, nickel demand will ramp up as well.
But that’s just the beginning of the story. Not only will the rising number of EVs boost demand for nickel, but so will the rising nickel-intensity of EVs.
Just a couple years ago, for example, the leading battery chemistries featured equal quantities of nickel, cobalt, and manganese. In these so-called 1-1-1 batteries, nickel represented 33% of the total metal content.
But this 1-1-1 chemistry is yielding to new batteries that contain as much as 80% nickel. If batteries like these become the industry standard, the average nickel content per EV would jump from about 45 pounds per vehicle to more than 100 pounds.
So far, battery production represents just 5% of total nickel demand. Stainless steel represents about 70%. Both of these demand sources will increase over the next 20 years, but battery demand will increase at a much faster rate.
As a result, U.K.-based commodity research group Roskill predicts that world nickel consumption in EV battery materials will increase 65% over the next five years to become 15% of total demand.
By 2030, Roskill sees battery demand soaring to 738,000 tonnes — equal to 20% of global nickel demand. And by 2040, nickel demand from batteries could hit 1.27 million tonnes by 2040 — equal to 30% of the total market.
At that point, total nickel demand from all sources would be 4.25 million tonnes — or more than double current world production.
On the supply side, mining companies cannot simply flip a switch to bring new production online. No matter how earnestly Elon Musk pleads for new nickel supplies, they will be slow to materialize.
Underinvestment in the sector has persisted for so long that minimal new production is in the pipeline. Furthermore, despite the obvious growth of nickel demand, mining companies might still hesitate to expand production, simply because the nickel price is still fairly low.
According to Wood Mackenzie, the long-term price necessary to incentivize new nickel projects outside Asia is about $20,000 a tonne. But the current price is less than $15,000.
That’s why a large and growing supply deficit is likely to develop over the next few years. As the chart below shows, this upcoming nickel supply deficit will result from both falling production and surging demand.
Obviously, no one can predict the exact growth rates of the coming battery boom. But the trend is quite clear. And this trend points quite clearly to booming demand for battery metals like nickel …
Tesla Needs Nickel — and This Company Has It
Unfortunately, “pure play” nickel stocks are few and far between. But just yesterday, during The Survive and Thrive Summit, I placed a “bet” on a nickel miner and another company in this sector.
The nickel miner possesses the ideal combination of growing low-cost production and vast exploration potential. In other words, it is exceptionally well positioned to capitalize on the coming nickel boom.
It’s already up 8% today. But I think it has much further to run.
In fact, one of these stocks could be my the record-breaking 42nd stock I pick to soar more than 1,000%.
If you missed out on this free event, you can check out The Survive & Thrive Summit for a limited time by going here.
On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends … before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south.