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Base metals, particularly nickel, are essential to our modern economy and are critical to supporting sustained economic growth. Nickel’s versatility is evident in numerous use cases. However, two key trends within our modern economy – energy storage and electrical vehicles – have driven increased nickel demand in recent years and are projected to continue doing so in the years to come.
The Versatility Of Nickel
Nickel plays an important role in our modern economy due to its distinctive attributes of high resistance to heat and corrosion and its ability to be easily cleaned. Approximately two-thirds of nickel’s usage is in stainless steel items, which range from pots and pans to large-scale industrial manufacturing items, such as jet engines. Due to nickel’s high resistance to corrosion and heat, it is a versatile metal that can be used across differing manufacturing use cases.
As the world moves to meet growing global requirements for electricity, the importance of nickel in batteries and energy storage is increasing further. For example, lithium-ion batteries increasingly use more nickel to increase the drivable range. Adding nickel increases the energy density of these batteries, leading to a longer drivable range. So, for geographic areas such as North America, which are very car-dependent, nickel will likely become an increasingly important part of the transition from gas-powered cars to electric vehicles in the coming decades.
Nickel Supply Amid Growing Demand
As reported in the 2024 International Energy Agency (IEA) Global EV Outlook, the shift to a clean energy system is set to drive a huge increase in metal requirements, leading the energy sector to become a significant stakeholder in their procurement. In a scenario that meets the Paris Agreement goals, the IEA forecasts that the demand for metals will rise significantly over the next two decades, with total demand increasing by 60-70% for nickel. Given the anticipated demand for nickel, understanding where it can be sourced is important.
Presently, Indonesia is the primary region where nickel is mined, accounting for approximately 50% of global production. Some other countries – namely, the Philippines, Russia, New Caledonia and Australia – are also nickel providers; however, the scale of Indonesia’s mineral reserves warrants its market share.
From a geopolitical perspective, China has been getting close to Indonesia for the last two decades as it tries to corner various aspects of the critical minerals market. In turn, to spur investment in Indonesia’s nickel industry, stakeholders interested in accessing their nickel reserves to help build up their supply chain could be important.
Future Use Cases For Nickel
As mentioned earlier, the growth of the EV sector is expected to be a strong driver for nickel demand. However, the development of data centers and AI is proving to be another catalyst for demand. AI requires vast data centers that contain sophisticated servers, which use large amounts of energy for ongoing computational power.
One of the things that data centers need during periods when they might not have excess energy, such as if they're using solar or if there are other infrastructure problems, is battery backups. Innovation within battery design is demonstrating that nickel-zinc battery chemistry has a high energy efficacy rating, resulting in a much denser battery, which means it takes up less space - which is at a premium inside AI data centers and also allows these batteries to operate at a much higher temperature.
Investing In Nickel With Sprott
As the world moves to meet rising requirements for electricity, growing numbers of electric vehicles and a greater need for energy storage, a myriad of technological innovations will undoubtedly be brought to market, but they all will require the necessary battery metals for them to be viable. The Sprott Nickel Miners ETF Fund (NASDAQ: NIKL) aims to capitalize on the growing demand for nickel.
The potential value of the Sprott Nickel Miners ETF Fund is three-fold. Firstly, as commodity exposure – commodity indexes tend to be underweight nickel or exclude it altogether. Investors could consider this ETF to add to their commodity portfolio, or to allocate more to nickel than the benchmark they are tracking may be providing.
Secondly, as a thematic or growth bucket. Thematic and growth often tend to go hand in hand. Since nickel is an area of the commodity sector expected to grow in the coming decades, future-focused investors may want to look into this ETF for exposure.
Finally, as a global equity energy allocation – given that non-U.S. countries hold the largest nickel reserves, investors looking to diversify their energy exposure could consider this fund in light of the importance of nickel in EV batteries and energy storage.
Sprott’s recent special report, The Case for Investing in Nickel Miners, argues that as electric vehicles and energy storage technologies become mainstays in our global economy, the companies that reflect the value of battery materials will represent real economic value and be a source of wealth-building for investors.
Featured photo by Kumpan Electric on Unsplash.
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