With all major battery manufacturers looking to the future through the lens of EVs, it’s abundantly clear that the future of high energy batteries will converge on layered oxides increasingly rich in nickel.
Nickel poised for a rebound
There is growing confidence that nickel is heading back into boom conditions. A mid-year report by Forbes indicates that the nickel rush is about to restart, as steel and battery demand rises, and tell-tale signs of something significant brewing in nickel can be found in the growing number of deals in the metal – especially a high-risk move by a small Australian mining company New Century Zinc to acquire the loss-making Goro project from Brazil’s biggest mining company, Vale, on the Pacific island of New Caledonia.
At the same time as the sale of Goro made waves in the commodities world, an investment bank detected anomalies in the Chinese nickel market in what looks to be a repeat of events last October when there were signs of an attempt to corner the nickel market.
While not yet attracting the eye of investors in the same way iron ore has with its 30% rise to USD100 a ton, there has been a strong flow of deals and a hint of stockpiling ahead of a possible nickel shortage.
Not too long ago, speculators were very active in nickel because of a belief that demand from battery makers could quickly match demand from stainless steel makers – an event postponed thanks to a collapse in electric vehicle (EV) demand. But, Covid-19 and the economic downturn and uncertainty it has triggered, resulted in weaker consumer confidence, which negatively hit EV order books – in the short term.
The latest developments in nickel indicate that the rush to build a position ahead of an EV revival is underway, with EV demand a key factor in BHP Group, one of the world’s biggest miners, retaining an interest in nickel after several years of trying to sell its Australian nickel assets.
The flurry of corporate activity among nickel mining companies, coupled with hints of hidden stockpiling in China and the combination of stronger than expected demand from stainless steel mills and an expected surge in demand for EVs point to nickel being in the early stages of a fresh upward price move.
‘Explosive’ demand
Global financial services provider Macquarie Group has called for investment into the nickel sector, despite an anticipated oversupply in the near-term. In his keynote address at the Paydirt Nickel conference, in Perth, Macquarie Senior Commodities Strategist, Jim Lennon, said that immediate investment in the nickel sector would be required to meet the potential ‘explosive’ demand post 2025. He pointed out that in the medium-term, the pace of growth of the stainless steel market, and the pace of uptake of nickel in the lithium battery market would determine nickel demand.
The two key points in what’s happening with nickel are the development of a major new market in rechargeable batteries and its time-worn reputation for extreme cyclical moves, up and down, and while the last genuine nickel boom was 13 years ago, there is a pattern developing in the price of the metal. For those investors interested in the EV revolution and the future of nickel, the first thing to remember is that more than 70% of demand comes from stainless steel against 5% of nickel which goes into batteries. However, if the growth comes through for EV’s, and, given the change in battery chemistries to include more nickel, it’s going to be very hard for nickel producers to keep up with strong forecast CAGR in the EV market.
Shifting battery chemistries favour nickel
Battery chemistries are shifting in favour of high-nickel chemistries, which, subject to the required technological developments, provide greater driving ranges and reduce the need for cobalt per cell. The rush to develop cathodes containing eight parts nickel, one part cobalt and one part manganese was driven by the higher density offered by this type of battery, with faster development also pushed by the jump in cobalt prices seen in 2017 and early 2018. As we move from the chemistries, from NCM 111 to NCM 811 and nickel-cobalt-aluminium, the nickel content per battery cell is going to increase from about 33% to about 90 to 95%. The transition to nickel-rich batteries is going be a significant factor for nickel demand growth on top of going into a period of EVs becoming more mainstream, and on top of that, driving ranges increasing, which is going to require larger battery packs. So, on three counts, nickel is a winner.
There’s currently no shortage of nickel — the problem is the type of nickel the lithium-ion battery industry needs. The lithium-ion battery industry needs Class 1 nickel to make nickel sulphate. Producers currently rely on sulphide mines or HPAL operations and Class 1 nickel stocks. The Class 2 nickel, which is smelted from laterite ores, isthe cheapest and easiest nickel to make. It is currently used to make nickel pig iron (NPI) to feed the stainless steel industry, and is not economically viable to make nickel sulphate at the moment.
Furthermore, we expect that in the near term, nickel ore stocks in China will dwindle down, putting NPI producers in the country under pressure. As a result, they might start suffering shortages, and if units are needed, they might start looking at Class 1 nickel as well. But in the near-term, the requirement for the class 1 nickel that is suitable for battery applications will be felt less acutely, and existing nickel stocks can provide a buffer.
However, these are all short-term factors. The main takeaway is that given the expected growth in EVs and the change in battery chemistry, it is going to be very hard for the producers to keep up with the strong compound average rate growth that we expect.
And where does the EV story stand right now? Core believes that the drivers remain robust, despite taking some short term hits, but it may take some time to recover. Overall we believe the EV penetration rates will continue to increase and the underlying theme of the lithium-ion battery story is that it is very strong — the electrification era has definitely started. It will take blows, like Chinese subsidy changes and the Covid-19 crisis, but these factors won’t hold back progress for long.
