BNIS
Short
BNIS Short
Notes Notes
Nickel Sector
Analyst:
Firman Hidayat
firman.hidayat@bnisekuritas.co.id
The New Gold
What’s New?
 We are quite sanguine on nickel sector’s long-term prospect in
light of the expected nickel supply shortages, driven by Electric
Vehicle (EV) revolution
EQUITY
RESEARCH
September 22, 2020
OVERWEIGHT
Nickel inventory vs. nickel price swings in
last 5-years
Key Highlights:
 Fundamentals may spoil stellar run for nickel price in the shortterm...
 ...but, in the longer-term global nickel supply deficit is on the
cards
Current nickel prices’ surge is not supported by strong
fundamentals...
Amidst the pandemic, nickel price’s performance has been a surprise
on the upside. Presently, nickel prices have rallied 35.9% from the
lows in March 2020, reaching USD14,850/ton. In addition to hitting a
six-month peak, nickel prices registered the highest growth rate
among industrial metal prices. On the other hand, production
activities in key nickel producing nations such as Indonesia and
Philippines were relatively less impacted by the pandemic, which
otherwise has had a major impact on demand globally resulting in
nickel’s supply surplus. According to International Nickel Research
Group (INSG), the global nickel market after supply shortage, which
has been persistent over the years at 46,000 tons, 115,000 tons and
127,000 tons, respectively, in 2016-18, and at 31,200 tons in 2019. In
8M20, London Metal Exchange (LME)’s nickel inventory stands with
a surplus of 76,300 tons, up 50% from the beginning of the year.
Source: Bloomberg, BNIS Research
USD/IDR exchange rate movement
Source: Bloomberg, BNIS Research
...rather it’s more sentiment-driven
As markets are forward looking mechanism, we think the markets
are likely paying attention to a few drivers in the future; the nickel
price swings would depend on two main catalysts, namely:
 Infrastructures spending; such as China’s Belt and Road Initiative
(BRI) project and China’s new urbanization program; This
translates to strong Chinese nickel demand on increasing
production of “300 series” stainless steel which has a high nickel
content.
 Strong EV adoption worldwide with demand for batteries
boosting nickel consumption. Nickel is a metal with a large
energy density, hence its ability to store the highest energy.
Nevertheless, we are still concerned about how the current
sentiment could be sustained and how fast for both catalysts to be
able to absorb nickel supply per market expectations. For the shortterm, if global nickel consumption misses market expectations, it
would be possible for nickel price to drop gradually. However, in our
supply-demand scenario, we still anticipate a surplus around 90,000
tons in 2020F and a deficit in 2021F.
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BNIS Short Notes
Potential shift from infrastructural spending, EV trend likely to drive nickel
price higher
In short, nickel is a vital metal to power the new green revolution as a specific
component in the mass manufacturing of EV batteries. According to Bank of
America, globally electric car is estimated to surge from 5% of all vehicle sales
by 2021F to 40% by 2030F and 95% by 2050F. Even during the pandemic, the
global market for EV batteries is estimated at USD30.7bn in 2021F. Next, It's
projected to attain a size of USD87.2bn by 2030F, growing at a CAGR of 16.1%
over the analysis period of 2021F through 2030F.
We foresee that 6% of global nickel supply is currently used by the EV battery
industry with EV market share of around 2.5% of auto sales. Presently, about
7.2mn EV are on the road and the figure is expected to multiply at a faster
pace. Hence, we estimated when EV market share climbs to 40% in 2030F,
that’s going to require 60% higher than the recent historical volume of nickel
supplied or edges up to 9.6% of global nickel supply. The demand growth from
EV would therefore well outpace the demand growth for nickel supplied to the
steel industry of around of 2.5% per year. However, we believe that nickel
supply shortages will emerge, and most companies with nickel exposure will
benefit.
Indonesia seeks to become a key player in EV battery industry
Earlier this month, President Joko Widodo “Jokowi” stated the ambition to
become a key player in the global supply chain of EV batteries is part of the
national strategy for “energy autonomy”. According to the government’s
recent data, there are 63 ongoing developments of smelter projects in
Indonesia, and 39 are already in the production stage while the rest are still
under construction, scattered in 28 districts in 16 provinces. Our channel
checks suggest that smelters without direct access to the nickel mines will
struggle on three things: 1) Production costs are higher for nickel miners due to
higher transportation costs; and 2) The crackdown on illegal nickel mining and
the moratorium on new mining permits will make it hard for nickel smelters
with no direct access to nickel mines to obtain ore; 3) Harga Patokan Mineral
(HPM) nickel ore price policy is widely adopted as a mandatory benchmark
price in all nickel ore domestic transaction still on progress.
In 1H20, the average utilization rate for Indonesia’s nickel smelters was less
than 70%. We think this was due to two reasons: 1) New smelters’ production
volume is typically low in the first year; and 2) Production costs were quite high
at around USD10,000-11,000/ton, while the average LME nickel price in 1H20
was quite low at only around USD12,500/ton due to Covid-19 outbreak. We
think the latter was more of a factor on low utilization. On the other hand, EV
producers such as Tesla hopes nickel prices will go lower and lower.
Key beneficiary: Nickel producers as LME nickel price is expected to be
stronger for the long-term
There are three nickel miners that should benefit directly from strong nickel
prices, namely Vale Indonesia Tbk (INCO IJ), Aneka Tambang Tbk (ANTM IJ) and
Central Omega Resources Tbk (DKFT IJ). Out of the three, impact on INCO
would be the clearest as the company only sells a single product; hence, it
means any improvement in LME nickel price will increase its Average Selling
Price (ASP). Our top pick is INCO IJ with TP of IDR4,500/share due to high nickel
content in its product and low production cost.
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BNIS Short Notes
APPENDIX
Exhibit 1. Global nickel market supply and demand scenario
Source: International Nickel Research Group (INSG), BNIS Research
Exhibit 2. Specific energy comparison amongst Li-ion batteries
Lithium Cobaltite
(LCO)
Volumetric Energy (Wh/L)
Lithium Iron
Phosphate (LFP)
Lithium Nickel Cobalt Manganese
(NCM)
Lithium Nickel
Cobalt Aluminum
(NCA)
570
544
629
685
2,907
1,958
2,988
3,322
Nickel composition (%)
10
10
33
80
Manganese composition (%)
30
40
33
0
Cobalt composition (%)
60
50
33
15
0
0
0
5
Specific Energy (Wh/Kg)
Aluminum composition (%)
Source: Cleantech.com, BNIS Research
Exhibit 3. U.S electric vehicle sales movements
Exhibit 4. Breakdown of nickel consumption
Sources: Bloomberg, BNIS Research
Sources: Cleantech.com, BNIS Research
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BNIS Short Notes
APPENDIX
Exhibit 5. Indonesia’s nickel smelter development overview
Source: Ministry of Industry, BNIS Research
Exhibit 6. Added value from nickel ore downstream project
Source: Ministry of Industry, BNIS Research
Exhibit 12. Comparison matrix of select listed nickel companies in Indonesia Stock Exchange (IDX)
Company
Ticker
ROE (%)
EV/EBITDA (x)
P/B (x)
Market cap
(IDR bn)
2020F
2021F
2020F
2021F
2020F
2021F
Aneka Tambang Tbk
ANTM IJ
18,385
1.2
2.4
14.7
12.9
0.9
0.9
Central Omega Resources Tbk
DKFT IJ
620
-22.6
-14.7
45.2
37.3
0.8
0.7
Vale Indonesia Tbk
INCO IJ
25,253
5.3
6.6
11.4
8.9
0.5
0.5
Sources: Bloomberg, BNIS Research
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BNIS Short Notes
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