The short squeeze on nickel in early March 2022 has put the metal firmly in the headlines, with prices rocketing and then dropping over recent days. What’s been your reaction to the news?
We were quite surprised by the rapid escalation in prices around 7th to 8th March. But as we assessed the information leading up to the events, we could see that stocks had basically come down to very low levels on the London Metals Exchange (LME) over the last 12 months or more. So you saw that stocks were getting to really quite low levels of around 80Kt, which was a key fundamental supporting the strength in prices.
On top of that, then we had the Russian-Ukrainian conflict starting to develop and, for a market like nickel which is very reactive in terms of sentiment, that really put a lot of fear in many consumers of nickel. Stainless steel producers are not going to be able to get hold of the nickel that they’d previously thought they would be able to extract out of Russia. So that added further impetus to the price.
And then on top of that you had the short squeeze by that large investor in Tsingshan Holding Group. Altogether, these events sent the price of nickel through the roof.
We were also surprised that the LME decided to halt trading. But given the price looked as though it was out of control this was not a surprising outcome. However, I think probably what has happened now is that we’ve gone to the other extreme and that this circuit breaker has been put into place where the price can oscillate, up to 8% either way. There’s now a steady downward movement of price, which we expect will just continue while this mechanism is in place, until we’re back at more reasonable levels of anywhere between US$20,000 and US$25,000 per ton.
What do you think the long-term impact of the Russia-Ukraine conflict will be on nickel production and supply, given that Russia is a huge producer of nickel?
This year we were expecting 195Kt of nickel coming out of Russia. Part of that was going to be sulphate, but the rest of it was metal. When you look at that, it’s about 6% of global production, and it also makes up around 20 to 25% of LME-deliverable material. So it is a big chunk, but it’s not in terms of global production. The key centre for nickel production now is Indonesia. However, the nickel coming out of Russia is still an issue.
What we see is that China has not put any sanctions on Russia and much of Russia’s material is sent to China already. So, Nornickel has basically got the option to send more and more material over to China for processing. I suppose the question around that is that if they process that nickel or nickel sulphate into electric vehicle (EV) batteries, how many Western countries will be keen to have Russian material in their EVs?
It’s a really hard puzzle to unlock in a way, because there are fairly big timeframes involved, and we can only really speculate on how consumers will view Russian batteries that have been made in China.
If you look at anywhere outside of Indonesia, excluding the Philippines, there has been little investment in Western-world projects
These price fluctuations could spell trouble for auto-makers. How do you think this is going to play out in the long-term?
Over the last two to three years, people have been extremely excited about nickel and its role in EVs. But in 2021, we had around 8% of global nickel going into nickel sulphate for EV batteries. Stainless steel was still accounting for 60 to 70% of first-use consumption of nickel. So, the ramp up of nickel in batteries has been slow to start, but with increasing support from governments targeting zero emissions it is starting to speed up. By the time we get to 2040, we would expect that the amount of nickel that is going into nickel sulphate for EV batteries would have expanded to around 40% of the market.
So while high nickel prices are going to impact the way batteries are made, until we have new technology and we move away to different kinds of batteries, I think we still expect that the demand will be solid over this next five to 10 year period.
At Wood Mackenzie, we’re looking at the idea of recycling and how much nickel can start to come back into the market once batteries have had their Ten-year life in a car. We need to see what those life cycles start to look like for your average EV, and then we have to start to understand how recyclers will take them apart, and in what way they would use nickel and cobalt from a battery, and where this can be recycled and reused.
In terms of investor sentiment, obviously right now investors are spooked, but do you believe nickel will continue to have a bright future?
For companies involved in nickel for a very long time, they’re probably not surprised in some ways that the situation could get out of control, and it’s now really about trying to get back to a more balanced situation. But we are in a tight market position. We had about 25Kt in surplus this year, which now given the Russian situation, will swing into deficit.
But the issue more-so in terms of investors, is that we’ve seen prices going from strength to strength for the last couple of years, and the market has been tight. We have seen very little investment in nickel projects, especially outside of Indonesia. Chinese sponsored Indonesian extraction of nickel has been prolific and has just gone from strength to strength. But if you look at anywhere outside of Indonesia, excluding the Philippines, there has been little investment in Western-world projects. So what you find is a lot of M&A activity, just trying to get replacement tons rather than real expansion.
But going back to your question, I remain positive. The LME has to work out what it’s doing because I don’t think it can be dictating to the market quite like this. Some more things need to play out in order to work out what a free market movement would look like, not just 8% down, 8% down, 8% down. Some new boundaries need to be established before that bright future can start at pace once again. But because of nickel’s use in EVs, at this stage, yes, I think the future is still bright for nickel.
