SII: COMMODITIES - THE NATURAL CHALLENGES FOR EV - COBALT, LITHIUM & NICKEL
-- SOURCE: 10-20-17 RealVison.com The Hack
Nickel is a base metal that is used in variety of industrial applications.
- It is added to steel for corrosion resistance,
- Often used for its bright and lustrous appearance in coins, jewelry, etc.
- Used in batteries, such as NiCad batteries, which have recently been superseded by lithium ion designs.
- It is, however, still a vital component in battery manufacturing for EVs.
Last week in The Hack we looked at the bullish fundamentals driving the cobalt price, as identified by The Bear Traps Report. The report focused in particular on cobalt’s limited supply dynamics, given the potential for explosive demand growth for EV batteries. Lithium and associated stocks like FMC, SQM, and the LIT ETF have also seen interstellar price performance, but the nickel price has remained fairly mundane:
Electric vehicle commodity race is in full swing
Source: The Bear Traps Report
Certainly, nickel has seen some upward price action since the 2016 commodities low, but returns have been muted. This metal still trades more like the broad-based metals complex – zinc, lead, and tin – than a hotly demanded, supply-constrained commodity.
However, things seem to have been turning up broadly in the metals space since July 2017 – something Greg Weldon forewarned us of in his jam-packed commodity-focused slide series ‘Let’s get ready to rumble’!
Interestingly, much of the nickel mined on Earth, such as the deposits found in Sudbury, Canada, is thought to be derived from meteorites, which are composed of iron and nickel. Nickel deposits are few and far between but tend to be rich in the mineral.
Global supply is around 2,000KT, and it has been falling due to high capital investment requirements to exploit new supply, coupled with low demand. All the major players have been reducing capacity due to underinvestment.
Nickel demand looks set to grow, which could move the supply balance into a deficit. Norn Nickel are one of the world’s largest producers, and they see the market tightening substantially by 2018:
Nickel market: Deficit expanding
They expect a 75KT deficit to emerge in 2018 as demand picks up from Asian stainless-steel producers and the broader global economy starts to heat up. Now add to the mix in this tight market the projected increase from EV demand in 2020 of ~90KT, rising to as much as 2,400KT by 2040, per The Bear Traps Report, and you can see the future scale of investment required in nickel mining.
The market for nickel is not as tight today as are those for lithium and cobalt, but it could get a lot tighter.
Changing the chemistry
‘There is no cure for high prices like high prices.’ With cobalt prices going through the roof, could substitution with nickel be the answer? Many Asian battery makers are switching to ‘NMC’ lithium-ion batteries that use more nickel:
SEOUL, Aug 3 (Reuters) – Soaring cobalt prices are prompting Asia’s top battery makers to tweak the recipe for lithium-ion batteries used to power electric cars and mobile phones – reducing the amount of cobalt and adding more nickel.
Popular nickel, manganese and cobalt (NMC) lithium-ion batteries typically employ a ratio of 60 percent nickel to 20 percent cobalt and 20 percent manganese, or 6:2:2, said South Korea’s SK Innovation, which aims to change the composition of these cathode materials to 80 percent nickel, 10 percent cobalt and 10 percent manganese. – Reuters
Now, nickel supply is obviously more elastic than cobalt supply is, and global reserves are much higher. (In fact, cobalt supply tends to follow nickel supply, since cobalt is a by-product of copper and nickel mining). But that same supply is always under threat from environmental shutdowns that have hit mines in the Philippines and Russia.
The medium-term supply deficit could create some interesting dynamics in the nickel industry if current industrial demand for use in steel pushes the market into a deficit, even before large-scale EV adoption occurs.
A nickel for your thoughts?
The breakout in nickel since July looks bullish, as it has broken the resistance that Greg Weldon identified. The fundamentals and price movement stack up for a shift higher if the global inflation pickup we have been seeing continues.