Russia’s invasion of Ukraine has shaken the global nickel market just as the metal is gaining in importance for use in electric car batteries. Raising fears that high prices could slow the transition away from fossil fuels.
Posted at 11:45 a.m.
The price of nickel doubled in one day last week, prompting the London Metal Exchange to freeze trading and cripple the global nickel market. After two years of supply chain chaos caused by the pandemic, this episode provided further evidence of how geopolitical tensions are destroying business relationships that companies once took for granted. They must therefore rethink the origin of the parts and metals they use to build cars and manufacture many other products.
Automakers and other companies that need nickel, along with other battery feedstocks, like lithium or cobalt, have started looking for ways to protect themselves against future shocks.
Volkswagen, for example, has begun exploring buying nickel directly from mining companies, Markus Duesmann, CEO of the automaker’s Audi subsidiary, said in an interview Thursday. “Raw materials are going to be a problem for years to come,” he said.
The prospect of prolonged geopolitical tensions is likely to accelerate attempts by the United States and Europe to develop domestic supplies of raw materials that often come from Russia. There are nickel deposits, for example, in Canada, Greenland and even Minnesota.
“Nickel, cobalt, platinum, palladium, and even copper: we have already realized that we need these metals for the green transition, to mitigate climate change,” said Bo Stensgaard, CEO of Bluejay Mining. , which is mining nickel at a site in West Greenland as part of a venture with KoBold Metals, whose backers include Jeff Bezos and Bill Gates. “When you see the geopolitical developments with Ukraine and Russia, it is even more obvious that there are supply risks with these metals. »
Consumers will pay
But setting up new mining operations is likely to take years, if not decades, because of the time needed to acquire permits and finance. In the meantime, companies that use nickel – a group that also includes steel mills – will face higher prices, which will eventually be felt by consumers.
An average electric car battery contains about 80 lbs of nickel. According to estimates by the trading company Cantor Fitzgerald, the surge in prices in March would more than double the cost of this nickel to US$1,750 per car.
Russia accounts for a relatively small proportion of global nickel production, and the majority of it is used to make stainless steel, not car batteries. But Russia plays a leading role in nickel markets.
Norilsk Nickel, also known as Nornickel, is the world’s largest nickel producer, with extensive operations in Siberia. Its owner, Vladimir Potanin, is one of the richest people in Russia. Norilsk is one of a limited number of companies licensed to sell a specialized form of nickel on the London Metal Exchange, which handles all nickel transactions.
Unlike other oligarchs, Mr. Potanin has not been the target of sanctions, and the United States and Europe have not tried to block nickel exports, a measure that would harm their economies as well as to that of Russia. The prospect that Russian nickel could be pulled from world markets was enough to cause panic.
Analysts expect prices to fall, but remain much higher than a year ago. “The trend would be to go back down to a level close to where we stopped last time”, around US$25,000 per metric ton from the peak of US$100,000 per ton, said Adrian Gardner, principal analyst. specializing in nickel at Wood Mackenzie, a research firm.
A sought-after metal
Nickel was booming even before the Russian invasion, with hedge funds and other investors betting on rising demand for electric vehicles. The price topped US$20,000 per tonne this year, after hovering between US$10,000 and US$15,000 per tonne for most of the past five years. In the same interval, nickel production has declined due to the pandemic.
After Russia invaded Ukraine, the price soared above US$30,000 in just over a week. Then came March 8. Word spread through London brokerage offices and hedge funds that a company, which turned out to be China’s Tsingshan Holding Group, had made a huge bet on the falling price of nickel. When the price rose, Tsingshan owed billions of dollars, a situation known on Wall Street as squeeze shorts.
The price soared to just over US$100,000 a tonne, threatening the existence of many other companies that had made a bad bet and prompting the London Metal Exchange to halt trading.
The Exchange tried to revive nickel trading twice this week by setting new price limits, but sudden falls caused trading to halt again. “The market is down,” said Keith Wildie, head of operations at London-based firm Romco.
The conflict in Ukraine underscored the urgency of moving away from fossil fuels, Duesmann said.
Russian oil plays a much bigger role in the global economy than Russian nickel.
“It would be too myopic to say that electromobility does not work,” he added.
Beyond the immediate supply disruption, automakers are worried about a pullback from the open markets that have been so good for business. Katrin Kamin, a trade expert at the Kiel Institute for the World Economy in Germany, noted that global trade has weathered the pandemic remarkably well.
“Perhaps we should talk less about the crisis of globalization and more about international relations,” said Mr.me Kamin in an email.
But the conflict in Ukraine, she added, “is a blow to trade”.