Nickel prices surged to decade-highs on Wednesday, as automakers scramble to secure supplies for electric vehicle batteries as the market booms and inventories dwindle.
Three-month nickel prices on the London Metal Exchange jumped as much as 4.4 per cent to $22,745 a tonne, the highest total since August 2011.
The latest upswing began in mid-December, with prices gaining 15 per cent in the last month, driven by a sharp uptick in electric car sales from key markets such as the US, UK and China.
Car manufacturers prefer batteries with a high proportion of nickel, which bolsters energy storage in a battery’s cathode.
This extends the range of electric vehicles to reliably long distances, a key feature for consumers as the market goes mainstream.
Last year was the most successful in British history for electric vehicle uptake as more new battery electric vehicles (BEVs) were registered than over the previous five years combined.
Over 190,000 BEVs joined Britain’s roads, alongside 114,000 plug-in hybrids (PHEVs), meaning 18.5 per cent of all new cars registered in 2021 can be plugged in.
This compares to a stagnant wider car market, where overall sales remain nearly 30 per cent below pre-pandemic levels.
Across the pond, Tesla signed a major deal with Talon Metals’ Tamarack mine project in Minnesota earlier this week – after the car giant announced a company record fourth-quarter delivery of 308,600 cars, despite continuing supply chain issues and economic turbulence caused by the Covid-19 pandemic.
It is set to ramp up construction further at its new gigafactories in Berlin and Texas, which are due to open this year.
The electric car giant plans to buy 75,000 tonnes of nickel concentrate over six years, as well as smaller amounts of cobalt and iron ore, at London Metals Exchange-listed prices.
It is unclear where Tesla will refine the nickel concentrate, as the US does not have a nickel refinery.
However, the decision is a boost for the country’s nickel market, after chief executive Elon Musk previously derided its production levels as “objectively very lame.”
Meanwhile, multinational miner BHP has thrown $100m towards a nickel production site in Tanzania as it looks to divest away from fossil fuels.
Indonesia is the world’s largest producer of nickel, which typically occurs naturally in an impure form as ore, and must be mined, extracted and refined.
Mining operations existing in dozens of countries worldwide with Russia, Australia and Canada among the most prolific.
While China is a leading consumer of metals, the fact nickel can be extracted without any reliance on the country also makes it appealing to Western car manufacturers.
Nickel to benefit from long-term sustainability trends
With the G20 nations pledging to phase down emissions at the COP 26 climate conference and key vehicle markets such as the UK looking to discontinue sales of petrol and diesel vehicles by the end of the decade, nickel is set to become an increasingly precious and highlighted resource for manufacturers.
Daniel Briesemann, raw materials analyst at Commerzbank, argued that nickel would enjoy sustained demand due to favourable market trends.
He said: “In our opinion, the trend towards electric mobility – and specifically the electrification of vehicle fleets – will be the key factor driving nickel demand growth in the next few years. This is also why many automobile producers are attempting to conclude long-term supply contracts so as to secure their supply of battery metals.”
He also anticipated prices would remain high because manufacturers are already “battling” to secure their long-term supplies, meaning there could be shortages over coming months.
The analyst noted that in London Metal Exchange warehouses, nickel stocks have meanwhile dwindled to below the 100,000 tonne – the lowest level in over two years.
Striesemann added: “The destocking is likely to continue given that somewhat more than half of the stocks are still earmarked for shipment. This is just one of the reasons why the nickel price appears well supported in our view.”
Nickel has also benefitted from a wider industrial metals rally as worries eased about economic growth in the biggest global metal consumer China.
While it is a not a leading nickel producer, it is competing for nickel with consumption rising in the world’s second largest economy as it recovers from the pandemic.
Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen, argued that while the growth of the electric vehicle market has been the initial driver for nickel prices, Chinese growth will also prop up prices.
In an investor’s note, he said: “The prospects for rising electrical vehicle demand, tight supplies and signs China is stepping up its policy response to a slowing economy have all helped reduce some of the macro risks that has weighed on the market in recent months, especially those stemming from China’s beleaguered property sector”
Speaking to Reuters, he added: “The focus in China is moving away from worries about the property sector slowdown to increased signs that they are going to provide stimulus and support to the economy, some of which will benefit industrial metals.”