Nickel may be the fifth most common element on earth, but it also has a huge variety of applications, which ensures a strong, base level of demand. Stainless steel, transport, energy, healthcare, food contact materials, water, paper – each of these markets is completely reliant on nickel. The headline grabber, however is, of course, the electric battery sector thanks to modern and next generation lithium ion batteries, containing up to 80% nickel.
With analysts predicting annual growth of the electric battery supply chain as high as 30% to 2030 – to a potential total in excess of $400 billion, it’s logical to assume a nickel supply crunch is headed our way. After all, most nickel production comes in the form of low-grade, Class II product, while batteries demand the ultra-high purity of Class I nickel.
So, why have nickel prices been trending downwards for the better part of this year and what does that mean for nickel investors?
First, a bit of context to understand current pricing. When it comes to Class II nickel, there is plenty of demand, but also a great deal of cheap supply. Class I nickel is really where the story is at, and it begins in March 2022. At this time, the market was expecting a massive Class I supply crunch. Those expectations abruptly changed when Chinese nickel giant, Tsingshan, announced it would supply 100,000 tonnes of nickel matte to battery midstream majors, which could be refined into battery precursor materials. The goal was to create matte by converting lower-quality nickel pig iron (NPI) – an energy hungry process high in greenhouse gas (GHG) emissions.
Nickel prices plummeted.
However, over a year later, battery-grade nickel had still not flooded the market and prices had picked up. It turned out that Tsingshan’s matte needed further, highly expensive processing to create battery-grade material. The company had in fact begun construction of new refineries but, to cope with short-to-medium term demand, it announced discussions to refit Chinese copper plants as nickel refineries.
According to Bloomberg, such a move could double Chinese refined nickel production in 2023, replenishing global exchange inventories which are near multiyear lows. It would offset a potential 10% output reduction from Russia’s Norilsk – the largest producer of refined metal.
Prices fell once again.
However, more critical observers such as analysts at The Oregon Group believe refitting will require complete overhaul and new equipment in any existing copper refinery. In other words, a lot more time and money. It is all part of China’s ongoing strategy that has helped them to dominate the global battery supply chain. Given time, China will complete construction and ramp up of its HPAL plants in Indonesia, where major laterite deposits are hosted.
As these expensive and highly complex plants near completion, sometime between now and 2024, an increasingly climate conscious market is asking: should the world be using nickel with such a large carbon footprint? The Chinese producers, with their energy intensive matte refining projects, and their Indonesian plants that have to manage highly toxic tailings, are gambling. Their strategy is built on the current lack of competition remaining in place long enough to make manufacturers utterly reliant on Chinese nickel, similar to Chinese dominance in solar panels.
It’s a high stakes bet. Admittedly, the West’s free market approach to resource development is not well suited to competition of this nature – where China’s state-backed miners and refiners can make investments without the requisite low risk, high rate of return boxes ticked. However, certain Western countries, the US and Canada standing out in particular, are rich in natural resources and have deployed major incentives to accelerate the growth of domestic supply chains. Also, manufacturers have begun demanding clean sources of product in order to avoid backlash from environmentally conscious consumers and governments.
What it comes down to is this: battery grade nickel remains a bright spot for the market, particularly for producing assets such as the Ramu nickel-cobalt mine in Papua New Guinea, which is part-owned by Canadian-based Nickel 28 Capital Corp. (TSXV: NKL). Thanks to the incredible demand growth, combined with the trends of clean supply, security of supply, and the energy transition as a whole, prospects for the nickel market are strong. Even if the flood of cheap Class I nickel does arrive from Chinese-owned refineries, the unique characteristics of today’s global battery sector means the market, and prices, could very well prove more robust than doubters would have us believe.
Anthony Milewski
About Anthony Milewski
Mr. Anthony Milewski is the CEO of Nickel 28 Capital Corp. (TSXV: NKL). He has spent his career in various aspects of the mining industry, including as a CEO, company director, advisor, founder and investor. In particular, he has been active in the commodities related to decarbonization and the energy transition, including nickel, cobalt, copper and carbon credits. Anthony Milewski previously worked at Renaissance Capital and Skadden, Arps, Slate, Meagher & Flom LLP, where he focused on advisory and transactional work in metals & mining and oil & gas sectors. He has lived and worked in Africa and Russia, including a year as a Fulbright scholar, and has spent considerable time in Central Asia. Mr. Milewski an M.A. in Russian and Central Asian Studies from the University of Washington, and a J.D. from the University of Washington.