MENU

Why nickel stocks like Independence Group NL are the ones to watch in 2018

Resource stocks are expected to keep outperforming this year after rallying well ahead of the broader S&P/ASX 200 (Index:^AXJO) (ASX:XJO) in 2017.

While copper, iron ore and oil seem to be grabbing most of the headlines, it is nickel that might provide most of the excitement on predictions that there isn’t enough of the mineral to meet the forecast growth of electric vehicles.

UBS is the latest to flag the potential looming supply-demand imbalance. The broker is expecting circa 16.5 million electric vehicles to roll off the production line in 2025 and that means an up to 40% increase in nickel demand (or 900,000 tonnes a year).

“The market is well supplied now, but the rapid evolution of this demand may mean we need new high-quality nickel supply,” said UBS.

“Nickel producers of high grade nickel are not investing & are instead cutting production in some cases. There appears to be investment in sulphate plants which just convert nickel metal to nickel sulphate (ready for battery use), just not in new mine supply.”

But predicting the impact and severity of any shortfall is not as straightforward as one might think. Battery technology may evolve to exclude the use of nickel while others point to the abundance of nickel and cobalt rich Limonite ores.

I don’t have a ready answer for the first issue, but UBS has shed some light on Limonite. The problem with Limonite is the difficulty and cost in extracting nickel from this ore type.

Special High-Pressure Acid Leach (HPAL) plants will need to be built and the current price of nickel cannot financially justify the investment.

So, if Limonite is seen as a solution to filling the supply gap, it can only mean one thing – higher nickel prices.

That would be very pleasing news for our nickel producers such as Independence Group NL (ASX: IGO) and Western Areas Ltd (ASX: WSA).

Mining giant BHP Billiton Limited (ASX: BHP) is another beneficiary as it produces about a third of Australia’s output of the mineral.

This is why I have a slight bias towards BHP compared to Rio Tinto Limited (ASX: RIO). I am also half expecting BHP to announce some sort of capital return when it hands in its earnings report card next month.

This could take the form of an off-market share buyback where franking credits can be distributed to shareholders, much like the recent exercise undertaken by Rio Tinto.

If you are looking for another exciting sector to watch this year, the experts at the Motley Fool have some exciting news for you.

They have uncovered a niche sector that is well placed to make a big impact on investment markets in 2018 and beyond. Click on the link below to get your free report.

Bill Gates Says This Could Be Worth “10 Microsofts”

If You Missed Investing In Microsoft in 1996 – Read This

I can’t believe so many investors haven’t heard about something Microsoft founder Bill Gates told a group of college students in 2004.

This could be your chance to get in on the ground floor!

Click here to discover more!

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!