Nickel’s dramatic rally is fueled by the “hype” over electric vehicles and faces a challenge from new sources of supply in the years to come, traders and analysts have warned.
The price of nickel on the London Metal Exchange has risen about 70% from its low last March of $ 18,410 a tonne, as speculators are betting it will benefit from the surge in sales of electric vehicles – which increasingly use plus batteries with a higher nickel content. Strong EV growth forecasts, encouraged by the push from policymakers for a “green” recovery, have raised a range of entry metals in recent months, including copper and lithium.
“The rally has nothing to do with fundamentals,” said Andrew Mitchell, analyst at Wood Mackenzie. “It’s EV hype. If you look at the supply / demand balance last year, there was a significant surplus, and we expect surpluses this year and next.
Only 8 percent of the demand for refined nickel comes from batteries, while more than two-thirds comes from the stainless steel industry. But the share of batteries could reach 32% by 2040, according to the firm CRU. Such forecasts fueled the rally.
“Sentiment has changed significantly,” Rob Crayfourd, portfolio manager at NCIM, resource specialist. “Much of the stimulus is focused on green energy, which is why we’ve seen the hype enter space.”
But Mr. Crayfourd is also cautious about the future of nickel because of the amount of investment in a new offer. He said he preferred copper for its wider use in wiring a range of clean energy technologies, including wind turbines, as well as for its looming supply shortage.
For nickel, new upcoming projects in Indonesia, Africa, Canada and the United States are expected to result in a continued surplus of the metal. The biggest source will probably come from China projects in Indonesia, which plan to use a process called high pressure acid leaching to separate nickel and cobalt to meet demand from the EV industry. A project, led by Chinese Ningbo Lygend, is expected to go into production this year. Another, led by Chinese battery materials maker GEM Co, is expected to start production in 2022, depending on the Covid-19 situation.
Analysts at Chinese firm GF Securities said they expected the projects “to reduce the cost of high pressure acid leaching projects, leading to a transformation in the use of nickel for batteries.” Batteries with a higher nickel content can store more energy and therefore provide longer electric driving range.
Talon Metals, a company that is developing a nickel mine in Minnesota with Rio Tinto, is specifically targeting the electric vehicle market and hopes to start producing in 2025. And this week, a small British miner Kabanga Nickel agreed with the Tanzanian government to develop the country’s Kabanga. deposit.
There are risks to the supply outlook. Last year, protesters in New Caledonia, a French territory in the South Pacific, attacked a mine owned by Brazilian Vale, after agreeing to sell the asset to a consortium including Swiss-based commodities trader Trafigura.
In October, New Caledonia voted to reject independence from France in a referendum, but anger is growing against foreign mining companies. Further unrest could prolong the closure of the Goro mine and affect others on the island. “All bets are off if this continues,” said one nickel trader. “The island is a powder keg.”
A big long-term question is how quickly EV demand can increase. Rachel Zhang, analyst at Morgan Stanley, says a shortage of nickel for electric vehicles could be “large enough to influence the price of nickel in two or three years.”
NCIM’s Crayfourd believes demand growth is “longer than the market suggests.” He predicts that a surplus will persist until 2024, or even 2025.