The future demand for electric vehicles will be a major determinant of nickel prices. (Mikes photo: public domain)
The insatiable demand for storing energy in batteries has led to a surge in the price of nickel.
- 3pc of the world’s nickel is used to make electric car batteries
- Indonesia announced it would ban nickel ore exports from 2020 as it tries to develop an electric battery industry
- Renewed demand for the commodity has led to once-mothballed nickel mines being re-opened
Nickel mining was in the doldrums for years but it rebounded in early September, to a five-year high above $US18,000 per metric ton.
Its value has jumped by 69 per cent since the start of the year, when it was trading at $10,604.
Porsche is the latest big car manufacturer to take on the electric dream with its so-called Tesla killer, the Taycan electric sports car.
“At the moment, about 3 per cent of global nickel goes into electric vehicle batteries,” said James Stewart, Ausbil Global Resources Fund’s portfolio manager.
“We expect that to increase to 10 per cent of the nickel market by 2022 and double again to 2025.”
“Nickel is a very important commodity to EVs [electric vehicles] and the battery thematic.”
Eighty percent of the world’s nickel is used to make stainless steel for pipes and household items like fridges.
But electric battery makers are increasing the use of the metal to boost their firepower.
Indonesia driving up prices
Supply fears came to the fore last month after Indonesia announced it would ban nickel ore exports from 2020 as it develops an electric battery industry backed by Chinese stainless steel giant Tsingshan Group.
That led to prices hitting a five-year peak of $US18,153 per metric tonne.
But those concerns have since been overtaken by the economic uncertainty caused by the US-China trade war and China’s slowing economy — causing prices to slip below $US17,000.
However, prices could be set to rise again with stocks at the London Metal Exchange sitting at a six-year low, down 40 per cent since the start of October ahead of the Indonesian export ban.
Investment firm Paradigm Capital said in a research note that “current inventories are enough to cover roughly one week of consumption, which we characterise as critically tight”.
The demand for electric vehicles and storage batteries has added fuel to nickel’s fire with once-mothballed mines set to reopen.
Commonwealth Bank commodities strategist Vivek Dhar, said that could lead to a supply shortage in the near future.
“We need to convert some low-grade nickel ore into high-purity nickel,” he said.
“Now the technology for that is very risky right now and that’s another key support for this commodity.”
However, Mr Dhar said Indonesia’s plans to develop an electric battery industry are not guaranteed because of its lower grade nickel, which is more expensive to process into battery grade material.
“There are projects slated to come on in Indonesia but it’s a wait and see,” he said.
“If they prove to be more expensive, that’s a long-term support for nickel pricing.”
Australian miners could benefit
Mr Dhar also said that Australian nickel miners are well placed for the electric battery boom.
“The Australian producers like Western Areas, Independence Group, they do significantly well because their nickel is more easily convertible to battery grade nickel,” he said.
Western Areas sells its battery grade nickel ore to BHP’s Nickel West mine and smelter business in Western Australia and Tsingshan.
Dan Lougher, the managing director of Western Areas, said the miner was expanding to meet the growing demand for batteries in Asia.
“We’re touching base with all the precursor battery manufacturers in Asia and I think our product will be a prime product for that,” he said.
The battery boom has seen BHP hold onto Nickel West after it was unable to sell it a few years ago.
Amid the global financial crisis, BHP wrote down the value of its Ravensthorpe nickel mine in WA to zero as prices plunged and sold it for almost nothing.
Now Ravensthorpe is set to re-open for a third time under new owners — Canadian miner First Quantum Minerals.
Depends on car sales
The real test for nickel will be whether the bullish forecasts for the take up of electric vehicles come true.
Bloomberg New Energy Finance predicts sales of electric cars will top 10 million by 2025 globally — but just two million were sold last year.
Mr Stewart said the forecasts are optimistic but customer acceptance of electric cars is increasing.
“These vehicles are getting better, customer acceptance is getting better, range is getting better.
“So the general acceptance from customers is increasing for electric vehicles as well.”
Mr Lougher said China is leading the way in the development and uptake of electric vehicles.
“There’s a lot of self-interest that’s being promoted by big, big players such as Volkswagen, Mercedes and BMW,” he said.
“What is obvious though is most of these companies are setting up shop in China.”
While China was leading the way in the uptake of electric vehicles, the infrastructure needed to support electric cars is still being developed in many countries, Mr Dhar said.
“We need to have electricity infrastructure, we need to have charging stations,” he said.
“It’s not exactly a slam dunk that this exponential trend will grow as quickly as we anticipate.”