Last month, nickel prices rose to multi-year highs, as concerns about supply disruptions due to geopolitical conflict clouded the already tight market. Benchmark nickel prices rose 1.6% to $24,740 per ton, after earlier hitting its highest level since August 2011. Today, nickel on the London Metal Exchange climbed 4.8% to $26,300 per ton, its highest price since May 2011.
Despite the global semiconductor chip shortage, electric vehicle (EV) sales in core markets such as China, Europe, and the United States saw a rise of around 130% to more than three million units in 2021, thereby creating strong demand for nickel. Ten percent of the demand is for EVs and about 70% is for the stainless-steel industry, which is set to play a crucial role in energy transition.
Given this backdrop, we think fundamentally strong stocks operating in the nickel market–BHP Group Limited (BHP), Rio Tinto Group (RIO), and Vale S.A. (VALE)--might be solid bets to capitalize on the nickel rising prices.
BHP Group Limited (BHP)
BHP is a natural resource organization, with two parent companies–BHP Group Limited and BHP Group Plc--that operate as one. The company is engaged in natural resource businesses regarding minerals, oil, and gas. It is organized into Petroleum; Copper; Iron Ore; and Coal segments. BHP has its headquarters in Melbourne, Australia.
On February 7, BHP reported that it is extending its partnership that is focused on low carbon iron and steelmaking with the Centre for Ironmaking Materials Research (CIMR) at the University of Newcastle. Dr. Rod Dukino, BHP VP Sales & Marketing Iron Ore, said, “The expanded research program with the University of Newcastle complements BHP’s existing partnerships with our key steelmaking customers in China, Japan and South Korea. We are pursuing the long-term goal of net-zero Scope 3 greenhouse gas emissions by 2050.”
Also last month, BHP welcomed MV Mt. Tourmaline, an LNG-fueled Newcastlemax bulk carrier set to transport iron ore between Western Australia and Asia from 2022. The new carrier is expected to improve energy efficiency and emissions intensity.
For its fiscal half-year ended December 31, BHP’s revenue from continuing operations increased 27% year-over-year to $30.53 billion. Its profit from operations rose 50.1% from the prior-year period to $14.85 billion, while its earnings per ordinary share came in at 186.20 cents, up 143.4% from the same period the prior year.
The $62.11 billion consensus revenue estimate for its fiscal year ending June 2022 indicates a 2.1% year-over-year increase.
The stock has gained 23.9% in price over the past three months and 13.5% year-to-date to close yesterday’s trading session at $68.50.
BHP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong 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 Quality grade of A and a Value and Stability grade of B. In the 36-stock Industrial – Metals industry, it is ranked #2.
Click here to see the additional POWR Ratings for BHP (Growth, Momentum, and Sentiment).
Rio Tinto Group (RIO)
RIO explores mines and processes mineral resources worldwide. The company, which is headquartered in London, offers aluminum, copper, diamonds, gold, salt, and iron ore. It also owns and operates open pits and underground mines, mills, refineries, and power stations.
On February 14, it was reported that the U.S. Department of Energy had awarded $2.2 million to an RIO-led team to explore carbon storage potential at the Tamarack nickel joint venture in central Minnesota. RIO Chief Scientist Dr. Nigel Steward said, “We will be working with leading researchers and innovators to prove the carbon storage potential of the Tamarack site and develop mineralization solutions that can be used not just here but at other similar locations.”
On January 24, RIO, Turquoise Hill Resources Ltd. (TRQ), and the Government of Mongolia reached an agreement that is expected to move the Oyu Tolgoi (OT) project forward. This might prove to be beneficial for the company.
On January 10, RIO announced that it had agreed to purchase four battery-electric trains in the Pilbara region of Western Australia. The purchase aligns with its strategy to reduce carbon emissions by 50% by 2030.
For the fiscal year 2021, RIO’s consolidated sales revenue increased 42.3% year-over-year to $63.50 billion. Its underlying EBITDA rose 57.8% from the prior year to $37.72 billion, while its underlying EPS improved 71.6% from the same period the prior year to 1,321 cents.
Analysts expect RIO’s EPS and revenue to come in at $10.39 and $52.89 billion, respectively, for its fiscal year 2022.
RIO’s shares have gained 28.8% in price over the past three months and 19.6% year-to-date to close yesterday’s trading session at $80.03.
It’s no surprise that RIO has an overall A rating, which translates to Strong Buy in our POWR Rating system.
RIO has a Value, Stability, and Quality grade of B. It is ranked #4 in the Industrial – Metals industry.
Click here to see the additional POWR Ratings for Growth, Momentum, and Sentiment for RIO.
Vale S.A. (VALE)
VALE, which is headquartered in Rio de Janeiro, Brazil, operates as a producer and seller of iron ore and iron ore pellets for use as raw materials in steelmaking internationally. The company operates through the broad segments of Ferrous Minerals; Base Metals; and Coal Segments.
On February 24, VALE declared a dividend of R$3.701840165 (R$3.70) per share, that is the equivalent of $0.73 per share, totaling $3.5 billion, payable on March 16. This reflects on the company’s ability to pay back its shareholders. It also announced the cancellation of a number of its common shares, representing 41% of the shares held in its treasury.
On February 23, VALE announced that it had signed a Memorandum of Understanding (MoU) with Hunan Valin Iron & Steel Group to pursue ironmaking solutions that focus on CO2 emission reduction. This is expected to contribute toward VALE’s commitment to reduce 15% of net Scope 3 emissions by 2035.
For the fiscal fourth quarter of 2021, VALE’s operating income increased 21.8% year-over-year to $3.56 billion. Its net income rose 753.4% from the prior-year quarter to $5.50 billion, while EPS stood at $1.07, up 664.3% from the same period the prior year.
The Street expects VALE’s EPS and revenue to come in at $0.83 and $12.14 billion, respectively, for its fiscal quarter ending March 2022.
Over the past three months and year-to-date, the stock has gained 54% and 34.5% in price, respectively, to close yesterday’s trading session at $18.86.
This promising outlook is reflected in VALE’s POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
VALE has an A grade for Quality and a B grade for Value and Sentiment. It is ranked #6 in the same industry.
In addition to the POWR Rating grades we’ve stated above, one can see VALE ratings for Growth, Momentum, and Stability here.
BHP shares were unchanged in after-hours trading Wednesday. Year-to-date, BHP has gained 24.69%, versus a -7.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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