Roskill: Multiple factors at play as the dynamic nickel market undergoes further transformation

The nickel market staged an impressive recovery since a COVID-19 low in March 2020 and the price rise was one of the strongest of all the base metals in 2020. This recovery was underpinned by strong stainless steel demand in China driven by a metals intensive stimulus package, in combination with resilient growth from the electric vehicle (EV) market.


London; UK, May 25, 2021 (GLOBE NEWSWIRE) --

The recovery led to the LME nickel price soaring to US$19,689/t by the end of February 2021. Despite the volatility characteristic of the nickel price, such an increase was counterintuitive given that the market remained in surplus throughout the majority of 2020. Market speculation, driven by concerns in some quarters of an impending shortage of nickel suitable for use in batteries, helped to fuel the bull narrative. 

Step forward Tsingshan: a Chinese stainless steel major, which in March revealed that it would begin supplying 100kt (75kt Ni) high-grade nickel matte to Chinese battery cathode manufacturers Huayou (60kt) and CNGR Advanced Materials (40kt) over a period of a year, starting in October 2021. This matte will be based on converted nickel pig iron (NPI) from Tsingshan and Australian company, Nickel Mines Ltd’s operations at the Indonesian Morowali Industrial Park (IMIP) on Sulawesi, Indonesia. The announcement had the impact of trashing much of nickel’s recent gains, with the LME nickel price declining by over 8.5% on 4 March to US$15,945/t. Tsingshan now claims to have the capability to supply high-grade nickel matte on a regular basis and some future rotary kiln electric furnace (RKEF) lines are being constructed with matte converters to provide the optionality to target either stainless steel or battery markets, depending on demand. The company currently consumes NPI at its integrated stainless steel operation in Morowali as well as exporting material to China. 

The reason for such a significant development in the market is that EV automotive manufacturers are opting for Li-ion batteries with increasingly nickel-rich cathode chemistries in order to boost the battery’s energy density and, subsequently, vehicle range on a single charge. Roskill forecasts that batteries’ share of primary nickel consumption will swell from 6% in 2020 to over a quarter by the end of the decade, making inroads on the dominant stainless steel market. Future availability of battery-grade nickel feedstocks has long been highlighted as one of the key pinch points in the battery supply chain. In addition to the quick fix solution offered by Tsingshan’s NPI-matte conversion deal, developments involving acquisitions and new project announcements over the past year are testament to the race to lock up long-term supply of the strategically important metal. 

At the end of March 2021, Vale concluded the protracted sale of Vale New Caledonia to Prony Resources (a consortium including Trafigura and a majority shareholding for New Caledonian interests). The Goro operation has been redesigned to stop producing nickel oxide, instead focusing now exclusively on mixed hydroxide product (MHP) supply for the battery market. Significantly, EV manufacturer Tesla will take a technical and industrial partner role at Goro, demonstrating that original equipment manufacturers (OEMs) want varying degrees of control over their raw material procurement. 

This deal was followed on 19 May by First Quantum Minerals (FQM) announcing that it had completed the sale of 30% of its Ravensthorpe operation for US$240M to POSCO, a Korean steel and battery precursor producer. As part of the deal, the two companies have entered into a memorandum of understanding (MoU) to consider the potential to produce battery precursor products i.e., nickel sulphate based on MHP from Ravensthorpe. POSCO will also gain a long-term offtake agreement for 7.5kt Ni-in-MHP commencing in 2024.

Turning the focus back to Indonesia, and the country is now reaping the rewards after navigating the risks following the implementation of a strict ban on the export of unprocessed nickel ores in January 2014. It did so to promote investment in downstream refining capacity and add value to its mineral wealth.

Not only has Indonesia established a fully integrated stainless steel industry, but the country now hopes to replicate this success with ambitious aims for a local battery supply chain based on the large limonite ore reserves well suited to hydrometallurgical processing to produce nickel intermediates. The commissioning of PT Halmahera Persada Lygend’s (PT HPL) Obi Island project, a joint venture between Ningbo Lygend and Harita Group on 19 May, represents a potential watershed moment for the nickel market, given the speed in which it was constructed and brought into operation. Designed over two phases, the high pressure acid leach (HPAL) operation has the capacity to produce 52ktpy Ni- and 6ktpy Co-in-MHP, ultimately targeting nickel/cobalt sulphates. Additionally, at IMIP, PT QMB New Energy Materials and PT Huayue NiCo are both constructing HPAL plants with plans to commission over the next 6-12 months. Significantly for PT HPL, its successful commissioning and smooth ramp up, will likely make it a blueprint for future HPAL projects planned in Indonesia. Currently, Roskill is aware of a further five HPAL projects that are at the feasibility stage in Indonesia, all with the potential to contribute significant volumes of battery-grade nickel to the market.

Despite the positive outlook for the nickel industry in Indonesia, risks however remain, mainly in the form of ESG concerns. The major sustainability unease of deep sea tailings placement (DSTP) was resolved last October after the companies aborted plans to dispose of tailings into the sea off Morowali. Such a U-turn was a compelling example of stakeholder pressure forcing companies to alter plans for their projects, even at the expense of increased costs and potential delays. The attention has now shifted to land clearance and habitat loss resulting from nickel mining in Indonesia, the rainforests for which are said to contain some of the highest levels of biodiversity on the planet. Given plans for NPI-matte conversion in Indonesia, the high energy consumption, based on an energy mix of low-cost coal, will result in some of the highest CO2 emissions in the industry that could be unacceptable to western OEMs whose customers are inherently environmentally conscious. 

Seemingly eager to source nickel that is unlikely to attract similar ESG supply chain scrutiny compared to Southeast Asian material, some companies have already locked in supply from alternative sources. Cathode manufacturers like BASF and Johnson Matthey have already agreed long-term supply deals with Nornickel for battery-grade nickel and cobalt produced at Harjavalta, Finland. These deals are a clear demonstration that not all future procurement decisions will be based on feedstock availability or cost when it comes to nickel sourcing.

There are many moving parts in the dynamic nickel market with an interplay of important factors. 2021 will be another important year for the nickel market, much of the action taking place, unsurprisingly, in Indonesia.   

 

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