With the global clean energy drive now kicking into high gear, the worldwide market for electric vehicles (EVs) is increasing rapidly. This in turn has created a huge market for EV battery technologies, which has been growing consistently over the past few years.
Nickel is a vital component in the lithium-ion batteries that power electric vehicles (EVs), and the demand for high quality nickel sulphates is expected to surge as the shift toward EVs accelerates. According to a report from McKinsey & Company, global demand for nickel is expected to increase from 2.2 million metric tons to in the range of 3.5 – 4.0 million metric tons by 2030.
Nickel is currently experiencing a demand-supply mismatch. Since suffering a pandemic-led decline in prices to $11.85K per metric ton in March 2020, nickel has been on an uninterrupted upward trajectory to trade at $18.58K/mt in February 2021, an almost 56.8% price rise over the period. Though one cannot say with certainty that now is the optimum time to bet on the commodity, we do believe nickel producing companies BHP Group (BHP) and Vale S.A. (VALE) have the potential to garner strong momentum in the near-term.
BHP Group (BHP)
BHP is a global resources company and producer of various commodities, including iron ore, metallurgical coal, copper, and uranium. Its businesses include Minerals Australia, Minerals Americas, Petroleum, and Marketing. The Company manages product distribution through its global logistics chain, including freight and pipeline transportation.
In January, BHP and Toyota Australia sealed a partnership for a Light Electric Vehicle trial to reduce the emissions intensity of its light vehicle fleet. The partnership will reduce BHP’s dependence on diesel and will help the company achieve its medium-term target of reducing its operational emissions by 30% by 2030.
Despite supply chain disruptions, BHP has continued to operate through the COVID-19 pandemic, delivering strong results. The company reported a strong second quarter, driven by solid results in Nickel and Iron ore. Its total nickel production has increased 75% year-over-year to 24 kilo tons in the second quarter, ended December 31. The higher volumes in nickel production were due to planned maintenance undertaken in the prior period. Its total iron ore production has risen 3% from a year-ago to 62.4 million tons over the same period.
Analysts expect BHP’s EPS to grow at a rate of 5.3% per year over the next five years. The stock has gained 34.2% over the past six months.
BHP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
BHP has a B grade for Sentiment, Momentum, and Stability. Of the 42 stocks in the Industrial – Metals industry, it is ranked #6.
In total, we rate BHP on eight different levels. Beyond what we stated above, we also have given BHP grades for Quality, Growth, and Value. Get all of BHP’s ratings here.
Vale S.A. (VALE)
Based in Rio de Janeiro, Brazil, VALE is a global producer of iron ore and iron ore pellets for use as key raw materials in steelmaking. The company operates through three segments: Ferrous Minerals, Base Metals, and Coal. It is also a key producer of nickel.
On March 31, VALE’s subsidiary Vale Canada Limited concluded the sale of its ownership interest in Vale Nouvelle-Calédonie S.A.S. to the Prony Resources New Caledonia consortium. The divestment will enable VALE to transform its Base Metals business, simplifying operations going forward and enabling a tight focus on core assets.
VALE’s total nickel sales have increased 40.6% year-over-year to 66,100 metric tons in the fourth quarter ended December 31. Its total iron ore sales have risen 6.3% from their year-ago value to 82.83 million mt over the same period.
Analysts expect VALE to report EPS of $0.90 in the current quarter (ending March 31, 2021), up 1185.7% year-over-year. A consensus revenue estimate of $12.52 billion for the first quarter represents a 78.9% improvement from the year-ago value. The stock has gained 64.3% over the past six months.
It is no surprise that VALE has an overall A rating, which translates to Strong Buy in our POWR Ratings system. VALE has an A grade for Quality, and a B for Growth, Momentum, and Value. It is ranked #4 in the same industry.
Click here to see the additional POWR Ratings for VALE (Stability and Sentiment).
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BHP shares were trading at $69.34 per share on Thursday afternoon, down $0.05 (-0.07%). Year-to-date, BHP has gained 11.70%, versus a 7.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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