How Indonesia and China Cornered the Nickel Market

Tracy Alloway (0:20)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:24)

And I'm Joe Weisenthal.

Tracy Alloway (0:26)

Joe, I have a joke for you, a very special joke.

Joe Weisenthal (0:29)

Go on.

Tracy Alloway (0:29)

Why did Anglo American write down its nickel business?

Joe Weisenthal (0:33)

Because it was only worth five cents.

Tracy Alloway (0:35)

Ah, that's so good. That's actually, okay, my line was, because it was a few cents short of a viable return, but yeah, okay.

Joe Weisenthal (0:42)

Oh.

Tracy Alloway (0:43)

Same thing. That's really good.

Joe Weisenthal (0:45)

Thank you. But you know what the thing is, is my daughter has gotten really into reading me jokes.

So she has all these joke books. My brain isn't very-

Tracy Alloway (0:53)

You can anticipate them.

Joe Weisenthal (0:54)

Yeah, and see where these all are going.

Tracy Alloway (0:56)

All right, well, on a serious note, Anglo American rejected that bid from BHP Billiton, which is something that came up in our conversation with Jeff Curry recently.

And as a result of that, it is now undertaking this formal process of selling off a bunch of assets and exploring options for its nickel operations. And one thing that I hadn't realized is just how much the nickel market has actually changed in recent years. Like, I sort of heard some rumblings of it, but I read something recently that really crystallized a lot of what's been happening in that market, and it is phenomenal.

Joe Weisenthal (1:38)

I have to say, I have not given any thought about how much the nickel market has changed, in part because I never at any point had some conception of what the nickel market was in the first place. So you're way ahead of me on this.

Tracy Alloway (1:51)

You're not thinking about the nickel market on a, like, at least weekly basis?

Joe Weisenthal (1:54)

No, I know like two, three things maybe about nickel, which is that a lot of it's from Indonesia, I believe.

It has some role in batteries or green energy, and so it's kind of an important commodity. What was the third one? Oh, it's also Indonesia. Could Indonesia move further downstream in the process so that it's not just exporting the raw nickel, but also exporting some of the actual, or doing some of the value add processing?

Tracy Alloway (2:20)

That's a pretty sophisticated factoid about the nickel market.

Joe Weisenthal (2:23)

Those are the three facts I'm aware of about nickel, but beyond that, none. I could definitely not tell you the number two producing nickel country.

Tracy Alloway (2:30)

Okay, well, I have a bunch of-

Joe Weisenthal (2:31)

And I definitely don't know why nickel is important in batteries either, so maybe we'll learn that.

Tracy Alloway (2:34)

Oh, that's a good question. Well, I have a bunch of interesting stats that I think will sort of hit home, stuff that has happened recently. But you mentioned the role of Indonesia in this market, and this is something that's relatively new. So I think they became the world's top supplier of nickel just in 2019 They overtook, I think it was the Philippines, and they now supply more than 55% of the world's nickel. So just insane dominance of that market. And in addition to that dominance in terms of market share, there's also lots of geopolitical intrigue with China.

China, by the way, is about to become a net-refined nickel exporter.

And I think just a few years ago, its imports, so not exports, its imports accounted for 14% of global supply. So it's gone from being a net importer potentially to a net exporter in just a few years.

Joe Weisenthal (3:34)

Crazy.

Tracy Alloway (3:35)

Right, so these are crazy stats. And I feel like we really need to dig into what has happened here, because there are all these sort of thematic Odd Lots ideas embedded in the nickel market. So one is just the idea of structural long-term demand for battery-related materials that will be important in the clean energy transition. I think nickel is used in hydrogen production too, I'm not sure.

But in addition to that, you also have the difficulty of actually building out sustainable business models for getting these strategically important minerals that we need for the transition. And we've seen Indonesia, there are a lot of accusations that it's been flooding the market with cheap and low-grade nickel. And so that makes it harder for everyone else, like Anglo American, to make money on this particular business. Is that pig nickel?

We'll get into that. We'll talk about all the different types of nickel. So anyway, I just think it's such an interesting story, and it's one that's sort of flown under the radar, at least for me recently. And so I am very pleased to say that we do, in fact, have the perfect guest to discuss this. We're going to be speaking with Michael Widmer. He is the Bank of America Head of Metals Research, and it was his report that really put this on my radar, and he just laid out some of the numbers that I cited to you a couple months ago, and I'm so glad we could get him on the show to further discuss this. So Michael, thank you so much for coming on Odd Lots.