The market for nickel in batteries was just over 100kt in 2018, only 4 per cent of demand, compared with 70 per cent of demand from the stainless-steel market. However, consensus forecasts are for this market to grow to over 500 thousand tonnes per annum (Ktpa) by 2025 and over 1 million tonnes per annum (Mtpa) by 2030.
While we don’t expect the impact of the Indonesian ban on the physical nickel market will be felt at least until the second half of 2020, prices have still rallied more than 50 per cent in the short term despite a short term over supply of nickel and the emergence of record major discounts for non-LME deliverable material such as ferronickel.
The market has been puzzled by the removal from LME warehouses in Asia of over 100 thousand tonnes (kt) of nickel briquettes, reportedly by a major physical market player, seemingly built as a speculative play. LME stocks have fallen below 100kt for the first time since 2012 - well down from a peak of over 470kt in mid-2015. This has created short term tightness in LME deliverable nickel, despite the over-supply of non-LME deliverable products such as ferronickel and nickel pig iron.
All the growth in nickel supply in recent years has been in nickel pig iron, a product containing only 10-15 per cent nickel, which cannot enter the LME system. Price bifurcation has emerged not as previously expected between LME nickel metal and nickel sulphate (used in batteries)- but between LME nickel and nickel-iron units.
The effects of this strategy to control the bulk of excess nickel stock suitable for making batteries for electric vehicles are unknown. But what is clear is that the jockeying for position to control the material suitable for this rapidly growing market has begun and will be here to stay for years ahead.
The future for nickel is bright with demand likely to average four per cent a year-on-year year, if not higher. The real issue for nickel is whether supply can respond adequately to meet this booming demand growth of over 100ktpa. There is little to no chance that nickel sulphide ore production can rise to meet this strong demand growth – most projects are replacing depleting production at existing ore bodies.
Demand growth will have to be met from the development of products based on laterite ore bodies. Most attention is on Indonesia, where mainly Chinese investment in new nickel projects for both nickel pig iron and nickel cobalt-hydroxide (using high-pressure acid leach; HPAL technology) is proceeding rapidly.
There are three projects in various stages of development to make battery suitable nickel from the high-pressure acid leach process with first production from the most advanced, a 36ktpa nickel project on Obi Island owned by PT Harita and Ningbo Lygend Mining of China, now due until late-2020, compared with predictions made a year ago that production would start by the end of 2019.
The other two projects, at Tsingshan’s Morowali Industrial Park, are still at early stages of development and potentially could add 130ktpa of nickel supply in 2021/22. Other projects are still years from development.
None of the HPAL projects has yet to get environmental permitting and reportedly propose to dispose of tailings by depositing them deep on the ocean floor (submarine tailings disposal). The only other HPAL project to do this is the Chinese-run Ramu plant in Papua New Guinea, which was recently halted temporarily due to a tailings’ spill.
The history of HPAL projects around the world has been one mostly of costly capital cost over-runs and prolonged commissioning due to unforeseen technical challenges. There is a growing risk that these projects could be subject to similar challenges.
The next two years will reveal whether the technically and environmentally challenging HPAL plants will succeed in delivering nickel (and cobalt) units to the growing battery market.
If they don’t, then technologies to convert nickel pig iron to a form suitable for batteries are likely to be urgently adopted instead. PT Vale in Indonesia is an example of such a process whereby it makes a nickel matte from laterite nickel ore and then sends this matte to China to be refined into nickel oxide (at Vale’s Matsusaka refinery) and nickel metal/nickel sulphate (at Sumitomo Metal Mining’s Niihama refinery). The add-on costs from ferronickel to nickel sulphate are estimated at $3-5,000/t.
NPI is now a proven low cost technology delivering nickel units to the stainless steel industry at a cost of under $8,000/t of nickel. This technology could deliver nickel sulphate units to the battery market for $13,000/t cash costs or less. This is of course significantly higher than HPAL operating costs (sub-$10,000/t after cobalt by-product credits). However, the environmental and technical challenges of adding the 200,000 tpa+ of incremental nickel units needed to meet rapidly growing battery demand over the next 5-7 years are massive.
Battery makers and the auto industry will be urgently seeking clarity that sufficient nickel will be available to meet its rapidly growing needs for lithium ion batteries. We think there could be a rapid shift to NPI to nickel sulphate production over the coming years if further delays in the progress of the HPAL projects emerge.
Jim Lennon is Senior Commodities Strategist at Macquarie Group