Soaring nickel prices over the last month, which have skyrocketed in response to the war in Ukraine, are a good example of how even a relatively available commodity can cause supply chain headaches for the energy transition, given the right conditions, reports Forbes.
Source of Nickel
A reliable nickel supply is important for electric vehicles, because it is used in small amounts for lithium-ion batteries. Continued price volatility could raise the price of electric vehicles by as much as $1,000, despite the small amounts used in the batteries. On a larger level, the issue highlights larger questions about what price—operationally, environmentally and financially—we are willing to pay for a low-carbon future.
While nickel deposits exist all over the world, there have been some shortages over the past couple of years of high-grade nickel, which is more expensive and difficult to mine than lower quality nickel. Companies like Tesla have been worried about the impact of possible future shortages, as electric-car demand increases. Tesla CEO Elon Musk said in early 2021 that possible nickel shortages are considered the top risk in relying on lithium-ion cell batteries.
That brings us to Russia, one of the world’s top suppliers of high-grade nickel at a competitive price. About 11% of global nickel production last year came from Russia, but its decision to invade Ukraine has made sourcing from Russia more complicated.
Impact of invasion
At the beginning of the invasion, the west banned imports of certain Russian commodities, followed by Russia’s announcement that it would withhold exports. Nickel hasn’t been specifically targeted, but the recent price fluctuations reflected concerns that it will be included in the future. The London Metal Exchange is also considering blocking Russian deliveries, providing even less certainty about Russia as a future source of the metal.
These factors have created chaos in the nickel trading market over the last couple of months. Prices on the London Mercantile Exchange (LME) had been bouncing around $20,000 per metric ton at the end of the year, but started climbing in early February in response to concerns of war.
By the second week of March, prices on the exchange closed more than five times higher, when trading was temporarily suspended. Speculative shorting of nickel has been largely responsible for the temporary price spikes and it has continued to fluctuate, trading as of March 24 at $35,000 per metric ton. (The LME has established daily price limits to combat the impact of short-term speculation on pricing.)
Price hike
Such a dramatic price jump is more a reflection of how unexpected the disruption was than about the global market’s ability to adjust, according to Margaret Kidd, program director of Supply Chain & Logistics Technology at the University of Houston.
“Supply chains do factor in geopolitical risks,” Kidd said. “However, this current round of sanctions is extraordinary and unprecedented even in the complex world of commodities.”
To clarify, nickel is not a scarce resource like lithium, which has received a lot of press attention for its role in the semiconductor shortage. Nickel is currently mined in many countries around the world. Indonesia, for example, currently produces about three times as much nickel as Russia, while Australia, New Caledonia and the Philippines roughly match Russia’s production rate. And several countries have reserves of nickel rivaling those of Russia, including Latin American neighbors Brazil and Cuba. There are also extensive nickel reserves on the ocean floor.
Challenges faced
The challenge in sourcing nickel, then, lies not in finding it but in locking in the most competitive price. Price depends on the grade and the relative difficulty in mining it. High-grade nickel (known as class 1) has a nickel content greater than or equal to 99.98% and generally comes from sulfide deposits. These sulfide deposits come from a lower depth and are more costly to mine in general. High-grade nickel is the only nickel suitable for producing nickel sulfates used in the manufacture of batteries.
Maintaining a reliable and cost-efficient source of nickel matters for the energy transition in part because nickel plays an important role in EV battery performance. Nickel is particularly well-suited for increasing the range of EV batteries. Increasing the amount of nickel to a battery’s cathode can boost its energy density, meaning more range per pound of battery.
“There are very few substitutes for nickel,” said Ramanan Krishnamoorti, a chemical engineering professor and chief energy officer at the University of Houston. “There are substitutes for cobalt, there are substitutes for lithium that are available but these are not available for nickel, mainly because the price has been so low.”
Price fluctuation
The price spikes, though likely temporary, still matter. In the short term, they have been disruptive to battery production. For example, Chinese producers of nickel sulfate stopped offering product because they felt it was too difficult to understand how the speculation was distorting real shortage-driven price increases, according to Rystad Energy. The uncertainty also led Spanish stainless steel manufacturer Acerinox to temporarily stop new orders of nickel, according to reporting by Bloomberg.
And even though EV batteries require only small amounts of nickel, Morgan Stanley analyst Adam Jones says a price hike like the one seen in February, if permanent, could raise EV prices by $1,000.
In the long term, there is also a growing supply problem. Jones’ metals and mining team had forecast a nickel shortfall by 2026, even before the Russia-Ukraine war.
The wildly fluctuating prices last month are also a reflection of how inelastic demand can be for key minerals in the short term.
“Nickel reacts to perception and sentiment strongly,” said Andrew Mitchell, Wood Mackenzie’s director of nickel research.
These kinds of price bounces are not new for nickel. In March 2021, when Chinese nickel producer Tsingshan announced plans to make a lower grade nickel matte in Indonesia, and – boom! – prices fell 20% in 48 hours.
“Nothing at that point had changed fundamentally, just the perception of what was to possibly come,” Mitchell said.
The latest sharp and sudden spike in prices was driven by aggressive shorting in the market, and a market overreaction, Kidd said. In this sense, nickel prices are expected to go down. They will also be helped by new developments in nickel mining technology over the intermediate term, which will make it less expensive to mine high-grade nickel.
But it will be at a higher than the 2021 $20,000 per metric ton price, because of the longer-term way EV demand is pushing the nickel market. The continued growth of the EV market translates into an expanding global demand for nickel, and while the current decline in nickel production will turn around because of the higher prices, it will take a little time.
EV market
President Biden has targeted a 50% EV share of the new vehicle market by 2030, but the devil in the details is turning out to be how we can guarantee the availability of key materials like nickel at competitive prices.
Pushing for more domestic mineral excavation will likely become necessary, even though the lengthy permitting process and environmental pushback in much of the U.S. discourages it.
One such proposed mine in Minnesota is now going through the permitting process with plans for it to be operational by January 2026.
While the mine itself is controversial, there needs to be more recognition that these projects may well be necessary – or determining which countries we are willing to do business with, at what price – if we really want to have a serious EV future.
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Source: Forbes
