June 22nd, 2023 | 09:05 CEST
Isolation and e-car crash - A new China shock for markets? BASF, NIO, Power Nickel
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"[...] China has become the manufacturing capital of the World, and because of its infrastructure, expertise and capabilities, Silkroad Nickel has strategically positioned itself to partner with Chinese companies in the Stainless Steel and EV industries [...]" Jerre Foo, Corporate Development Executive, Silkroad Nickel
Chemical industry under pressure - What is BASF doing?
In addition to the chemical company Lanxess, Sartorius also recently shocked with profit warnings. At the same time, economic indicators do not yet show a revival of the economy as observers had predicted for the second half of the year. As so often in the past, China had to serve as a beacon of hope. After Beijing declared the pandemic over at the end of last year, the country experienced a dynamic upswing. In the meantime, however, isolationism and scepticism are on the rise - this is not good news for flourishing global trade, especially for German companies, which suffer more than others from expensive energy. As Handelsblatt reports, exports by German chemical and plastics manufacturers fell by almost 11% between January and April 2023. This is also likely to be an issue for BASF, whose CEO, Martin Brudermüller, is seeking salvation in China.
BASF shares, meanwhile, are sliding towards last autumn's low below the EUR 40 mark. At the last presentation of the quarterly figures, BASF was still hopeful for the second quarter and referred to possible economic stimulus packages in China. Indeed, interest rates for companies have recently fallen in China, and the government has also extended tax breaks for e-cars. However, whether this will bear fruit in a time of protectionism is unclear. Only this week, the EU Commission presented a strategy for economic security, which is primarily against China. It provides for export controls on goods that are also used for military purposes, initiates a ban on "security-critical investments by the EU abroad", and wants to monitor investments by foreigners within the EU more closely. The share prices of BASF and Co. already reflect the new nervousness surrounding China. Analysts also recently lowered their thumbs, but Jefferies' price target remains at EUR 47.
A blow not only for NIO: Aiways bankrupt?
But there is also mixed news within China. Although Beijing recently extended tax breaks for the purchase of e-cars, from which Chinese manufacturers such as NIO or BYD are likely to benefit first and foremost, the reported bankruptcy of the Chinese carmaker Aiways shows how competitive the car market in China has become. This is not good news for German carmakers, who are not exactly on the sunny side of the market with single-digit market shares for e-cars. So where might opportunities arise for investors? They may arise for companies that help reduce geopolitical risks while acting sustainably, for example, by sustainably producing key raw materials for climate change in safe regions.
Power Nickel: Battery raw materials from Canada are in demand
One of these companies is Power Nickel. The Company is pushing ahead with the NISK project. The NISK property comprises a large land position (20 km strike length) with several high-grade intercepts. Power Nickel is focused on expanding past proven high-grade nickel-copper-PGE mineralisation with a series of drill programs. These aim to test the original NISK discovery zone and explore the land package for adjacent potential nickel occurrences. Most recently, Power Nickel released a drill intercept of 31.8 m grading 0.6% nickel, among other results. The results will be incorporated into an updated resource estimate, which Power Nickel plans to publish in the third quarter. In parallel, the Company is working on a tomography program to identify additional drill targets. Such technology serves to reduce exploration costs and increase the probability of the next discovery.
The German Raw Materials Agency points out that nickel was primarily used in steel alloys before 2020. In the long term, however, the importance of nickel for electromobility is increasing. As Southeast Asia and Oceania are heavily overrepresented in production, the importance of nickel from countries such as Canada, where Power Nickel operates and where batteries for e-cars and other uses are to be increasingly produced in the future, is growing. From an ESG perspective, Canada also has advantages over competitors such as Indonesia, where the energy for nickel processing still comes primarily from coal.
At a time when nervousness about geopolitical risks is rising and blue chips such as BASF are coming under pressure, as are Chinese e-car makers, investors can focus on problem solvers. While the share of Power Nickel must be considered speculative due to the early stage of the project, both the market expectations for nickel and the key data of the NISK project in Canada give hope. The resource estimate expected in the third quarter could shine a new spotlight on Power Nickel.
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