Talk that nickel stocks are being run down gave a boost to some of the nickel mining companies in a week where gold and copper posted high points.
Ambitious Canadian explorer FPX Nickel Corp (FPX.V) shared an infographic by commodities giant Glencore, which projected likely inventory drawdowns for nickel, zinc and copper for 2019. In the case of nickel and zinc, inventory declines were forecast even in the “unlikely” event that demand for the metals weakened.
FPX Nickel is a Vancouver-based company developing the large-scale Decar Nickel District located in central British Columbia.
Some investors were caught out last year as nickel prices dropped despite strong fundamentals, but Brian Leni, the founder of juniorstockreview.com, was bullish on the metal at the recent Vancouver Resource Investors’ Conference.
“The stainless steel makers and the battery makers have already started a proverbial tug of war for class 1 nickel, and this is causing the inventory drawdowns,” he said, noting that rocketing EV adoption rates could mean that by 2030 more than half of current global nickel production is needed to power the world’s cars. “You wonder where the production is going to come from.”
With steel production currently accounting for two thirds of global nickel demand, and this industry also growing, it does sound like time to ramp up production. And yet Glencore noted recently that 9% of global production has been shut down due to environmental concerns.
For all its detailed metals market analysis, Glencore itself did not have a good week. The London-listed but Swiss headquartered firm was presented with a US$680m tax bill by the British authorities, related to internal trading between the company’s own departments going back to 2008.
Glencore said it would "vigorously contest" the claim. That will likely keep a few lawyers busy for a while, so it’s just as well that Canadian junior mining company Black Iron Inc (TSX: BKI) got its memorandum of understanding (MOU) with Glencore signed this week.
Shares in Black Iron soared by a third on Wednesday, after it said it was in full negotiations for a financing package for its Shymanivske iron ore project in the Ukraine. The MOU also outlines cooperation between Black Iron and Glencore to leverage their relationships to source the balance of funds required to construct the project.
Meanwhile, concerns over stock levels helped copper post a 7-month high this week, with optimism about the US-China trade situation also offering support. Gold was also on the move, reaching a 10-month high before correcting sharply on Thursday. The downward move was attributed to dollar strength following the publication of the latest, relatively hawkish, Fed minutes.
Sector expert Michael Ballanger, writing on The Gold Report, felt that the market’s animal spirits had got a little carried away in 2019.
He said: “Much as I would enjoy basking in the sunlight of temporary success, recent price movements in gold and silver are forcing me to adopt a cautiously pessimistic stance on gold and what could be best described as a hopefully optimistic stance on silver, both being influenced by their respective RSI (relative strength index) readings.”
The Elliott Wave forecast team was more optimistic on gold. In the introduction to its latest Elliott Wave View, it said: “The next logical swing target for the yellow metal is to retest 2018 high at $1360. This level has provided resistance for the past 5 years and thus is a significant level to watch. A decisive break and close above $1360 suggests a more bullish implication with next swing target to as high as $1700. The chart below shows the 5 year rounding bottom formation in gold.”
The assessment and recent highs continue to provide grounds for optimism among Canada’s junior miners and junior gold stocks.