It has taken off from its 5-year lows of 2025 in response to Indonesia’s attempt to massage prices higher through policy.
Indonesia is the world’s biggest producer, with its (largely) Chinese-sponsored laterite nickel projects now accounting for about 60% of supply following massive investment in the industry.
Being the dominant producer is not much fun if achieving the position leads to oversupply and price weakness.
Indonesia’s response, at a time when its currency needs all the help it can get, has been to ‘’manage’’ production lower through a quota system,
It comes after the cost base of the Indonesian operations increased in a major way because of sharply higher sulphur/sulphuric acid prices. The laterite producers need it for their processing activities and are now paying more because of blocked supplies from the Middle East.
As a result of all that, the LME nickel price has moved from last year’s average of US$6.94/lb to US$8.60/lb. It is not pop the champagne cork kind of stuff for the ASX-listed nickel sector, but it is encouraging.
When the nickel price gets to US$10/lb, things start jumping in the ASX sector. The last price run to those levels was driven by excitement over nickel’s use in high-end batteries for long-range electric vehicles.
Nickel-based batteries remain a growth factor for nickel but not to the same extent expected earlier because of the rise of lithium-iron-phosphate batteries. Meanwhile, stainless steel accounts for about 62% of nickel demand and continues to bump along, growing in line with GDP.
Morgan Stanley reckons while there are risks to the nickel price from Indonesia increasing quotas and sulphur/sulphuric prices easing, the price could trade in a higher range from here, with the potential for price spikes if more existing production is knocked out.
BHP is in the process of selling off its Nickel West business having put it on ice in July 2024 when the nickel price was $US6.82/lb. Nickel’s price recovery is unlikely to stop it selling off the division in bits and pieces.
But no one should have been buying BHP for its nickel exposure anyway. So Garimpeiro went looking during the week to find where leverage to the metal’s price upside – it has long been one of the most volatile of all metals – might best be achieved.
He settled on Centaurus which is moving towards a go-ahead decision on its Jaguar sulphide nickel project in Brazil’s Carajas. It shares have about doubled in the last 12 months to 60.5c for a market cap of $342 million.
Broking analysts reckon there is more upside, with share price targets on the stock ranging from $1 (Argonaut) to $1.50 (SCP Equity). The price targets are a testament to the world-class status of Jaguar.
A 1.2Mt sulphide nickel deposit, Jaguar is being readied to become an initial producer of 22,000tpa of nickel at first quartile all-in sustaining costs of U$4.43/lb after up-front capex of US$380m.
The company has been busy pinning down financing for the project and some action on that front is expected in the coming quarter.
While the market’s focus on Centaurus is very much on Jaguar and the nickel market, the company also has copper-gold and iron ore legs to its Brazilian story at its adjacent Rio Novo and Boi Novo exploration projects, about 270km by road to the north-east of Jaguar.
The market gives little to no value for the copper-gold and iron ore potential of the projects but exploration at Boi Novo has been returning decent hits with more large-scale targets to be tested with the drill bit in the September quarter at Rio Novo.
The projects are about 20km from the Antas copper processing plant which BHP inherited with its takeover of OZ Minerals in 2023. BHP has since sold Antas to the Turkish group CoreX for up to USD$465m in staged payments.
CoreX is the same group which recently acquired South32’s Cerro Matoso nickel operation in Colombia for up to US$100m in staged payments. Given the cashed up company has an eye for the metal, its worth keeping an eye on.
