COLUMN-Surge in electric vehicle battery demand supercharges nickel: Andy Home

By Andy Home

LONDON, Feb 21 (Reuters) – Nickel hit its highest level in more than a decade on Monday morning.

The London Metal Exchange (LME) three-month nickel broke January’s high of $24,435 a tonne to hit $24,610, a level last traded in 2011.

Time spreads remain in the grip of fierce compression, with the cash premium closing last week at $465 a tonne.

The huge LME delivery incentive pulled metal into exchange warehouses, but not enough to stop the downtrend.

The possibility of sanctions against Russia, which accounts for around 7% of global production and is a major exporter to Western and Chinese markets, is in the bullish mix.

But the underlying driver of rising nickel prices is electric.

DEMAND BOOST

According to Adamas Intelligence, a record 286.2 gigawatt hours (GWh) of electric passenger vehicle (EV) battery capacity was deployed on roads around the world last year.

This represents a 113% increase compared to 2020, as sales of new energy vehicles continued to grow strongly in China, the world’s largest market, and exploded in Europe.

The electric vehicle battery sector uses less nickel than the stainless steel sector, but is growing much faster.

Not all batteries use nickel. A new generation of cheaper lithium-iron-phosphate batteries is gaining market share in China.

But 54% of battery capacity deployed last year used high-nickel cathode chemistry, according to Adamas Intelligence. Low-nickel chemicals accounted for 26% and nickel-free products only 20%.

The amount of nickel deployed in new electric vehicles last December was a record 19,651 tonnes, up 44% year-on-year and 29% month-on-month, the report said. consulting firm.

The electric vehicle revolution appears to be rapidly approaching a state of critical mass, which translates into record prices for cathode inputs such as nickel and cobalt and, of course, lithium itself.

THE RIGHT PRODUCT

The growing demand for battery metals reflects both the exponential increase in electric vehicle sales and the building of a global battery manufacturing industry, with each new gigafactory representing additional pull on metal stocks.

This traction is complicated in the case of nickel because not everything is suitable for conversion into sulphate which is mixed with the precursor mixture.

Class I nickel, defined as containing at least 99.8% metal, is just the ticket. It is also what is traded and stored on both the LME and the Shanghai Futures Exchange.

This is why there has been such a rush for the metal of exchange. Shanghai stocks have been running empty for many months and currently stand at just 5,301 tonnes.

At this time last year, LME warehouses held nearly 295,000 tonnes of nickel, 250,000 tonnes in the form of registered inventory and 45,000 tonnes of fictitious off-market inventory.

LME stocks today stand at 83,274 tonnes, of which 52% has been canceled and is awaiting physical loading.

Shadow stocks had fallen to just 2,687 tonnes by the end of December, according to the LME’s latest out-of-mandate stock report.

The stock rush keeps the time spreads volatile and the offset high. The absence of fresh warrantage – only 600 tons have been delivered so far this month – points to a simultaneous tightening of the physical supply chain, where premiums are also rising.

INDONESIA TO THE RESCUE?

The latest high nickel prices follow news that China’s Tsingshan has made its first delivery of Indonesian nickel matte to Zhejiang Huayou Cobalt Co Ltd.

This is a landmark development, marking a new way of processing laterite ore to battery-grade material.

Indonesia is the world’s largest nickel producer, but has historically supplied it in the form of nickel pig iron to the stainless steel industry.

It is now the experimental heartland of the global battery-grade nickel industry, with some operators following Tsingshan down the matte processing path and others opting for high-pressure acid leaching technology.

The magnitude of nickel accumulation in Indonesia is difficult to overestimate. The country’s mining output jumped 35% to 936,000 tonnes in the first 11 months of 2021, according to the International Nickel Study Group.

This meteoric expansion should, in theory, mean a much improved availability of battery-grade materials and a consequent drop in demand for Class I nickel.

Most analysts are optimistic on prices for the first half of the year, but more cautious thereafter due to this wave of Indonesian construction supply.

The reality, however, can be more complicated.

SEPARATE THE MARKET

What is mined and processed in Indonesia will not go anywhere near an exchange warehouse.

It won’t be in the right shape to qualify for exchange delivery, meaning its impact on the market will be muted until it displaces enough Class I metal to keep visible stocks from slipping. .

In the meantime, the price of nickel will be determined by how much or how much of the metal is in the exchange warehouses.

A more fundamental question, perhaps, is whether Indonesia’s nickel rush will do much to satisfy Western demand for battery-grade metal.

The country’s production sector is dominated by Chinese entities, which means most of the additional nickel supply will eventually flow to Chinese battery makers to meet domestic demand.

Even if Western players wanted to bulk up, it’s not clear that their end customers, the automakers, would want them to.

Indonesian nickel has a high carbon footprint due to the energy-intensive processing route and the fact that coal is an essential part of the country’s energy mix.

Also there is heightened scrutiny https://www.theguardian.com/global-development/2022/feb/19/we-are-afraid-erin-brockovich-pollutant-linked-to-global-electric-car -boom of wider environmental and social impacts of nickel mining in Indonesia.

Tesla has off-take agreements with BHP Group for Australian nickel, Trafigura for Caledonian nickel and Talon Metals for metal mined in the United States.

That says a lot about where the green pioneer thinks they can get green metal.

If other automakers come to the same conclusion, the impact of the supply surge in Indonesia could be significantly mitigated outside of China.

Ironically, just as Tsingshan closes the chemical gap between Class I and other forms of nickel, the end-user market gap could widen.

The opinions expressed here are those of the author, columnist for Reuters.

(Editing by David Clarke)

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