Gold Is Hot But Nickel Is Hotter As Demand Grows For Batteries In Electric Vehicles

Gold is hot but there's another metal which is hotter, nickel.

Up 30% over the past two months nickel has delivered more than double the performance of gold which is up 13% over the same time, and the gap could get a lot wider as the supply of nickel stagnates and demand accelerates.

The driving force behind the recent awakening of gold is well-understood and can be summed up as a flight to safety as the China v U.S. trade war slows global growth and values of conventional, or fiat currencies, are debased by governments resorting to quantitative easing or other forms of creating money.

Nickel's drivers are different and far easier to understand and boil down to a simple case of supply exceeding demand which, in past nickel booms, was essentially a case of mines failing to keep up with the requirements of steel mills making stainless steel, a material which has traditional consumed close to 80% of the world's nickel.

Demand Growing For Nickel In Batteries

Stainless steel remains the primary market for nickel but there's a faster-growing market which until a few years ago was insignificant; lithium-ion batteries.

A standard source of power in small appliances such as cell-phones with their nickel-cadmium (NiCd) batteries, or nickel-metal hydride (NiMh) rechargeable batteries the big game today is in the battery packs which power electric cars such as the Tesla, Prius and Leaf.

From being a metal easily described as a one-trick pony thanks to its dominant end-use in stainless steel, nickel has suddenly become a two-trick pony, and if electric cars take off as predicted then a shortage in future years is possible.

What caused nickel to run from around $5.40 a pound two months ago to $7.09/lb at the end of last week (and a high on Friday of $7.22/lb) was a combination of strong demand from Chinese stainless steel mills and speculation that a major source of the metal could be cut off sooner than expected.

The source under threat is unprocessed nickel ore from Indonesia which is shipped to China for use in steel mills as a material called Nickel Pig Iron (NPI). Indonesia, and other countries which produce NPI dislike the material because it does not require any value-adding in the home market.

Previous bans on NPI have crimped the industry only for it to return. But the next ban is expected to be permanent and while Indonesia has said it will not be applied until the year 2022 it could happen sooner, just as battery makers seek supplies of nickel to meet electric-car demand.

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