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Message: Batteries Juicing the Nickel Market: LME Nickel Sulfate Contracts in 2019?
The recently announced LME nickel sulfate contracts under consideration are a strong indication that the nickel sulfate market and upstream nickel sulfide market are facing considerable growth.
Annual sales of electric vehicles are expected to climb from 1.1 million in 2017 to 30 million by 2030. Each one requiring a battery chock full of base metals, especially lithium, cobalt and nickel sulfate. The price of nickelhas climbed nearly 60 percent since mid-2015 on an improved nickel demand forecast, mainly from the steel sector. The surging demand for electric vehicles (EVs) and in turn base metals such as nickel is expected to push those prices up further.
The impressive growth outlook for battery materials has prompted the London Metals Exchange (LME) to consider offering a suite of battery materials futures contracts in 2019 — including lithium, cobalt and nickel sulfate — to better take advantage of the booming EV market. The fact that the LME is exploring the launch of a nickel sulfate premium contract along with two of the other most prominent battery materials bodes well for this market and for the miners who produce the metal, as well as valuation for miners with compliant nickel resources in the ground.
Electric vehicle demand and nickel prices
Nickel’s strength and non-corrosive properties make it the ideal alloying metal in the manufacturing of stainless steel used in a broad range of industries including automotive, construction, household appliances and machinery. This sector accounts for nearly 70 percent of global nickel demand and stainless steel is expected to be a US$133.8 billion market by 2025, according Grand View Research.
Nickel is also an excellent conductor of electricity and the metal has long been a critical component in batteries of small electronic devices. Presently, the increasing electrification of the auto industry represents an emerging growth market for nickel. While much of the fervor around the EV batteries materials market has revolved around lithium and cobalt, the base metal turned energy metal is now the primary metal by weight in the cathode of many of today’s EV battery types including Lithium Nickel Cobalt Aluminum Oxide (NCA); Lithium Nickel Cobalt Manganese Oxide (NMC); and Lithium Manganese Oxide (LMO). For example, the Panasonic lithium-ion batteries Tesla uses in their vehicles reportedly have a cathode composition of 85 percent nickel, 10 percent cobalt and 5 percent aluminum.
“Nickel is an interesting one, and a question we are getting more and more at Benchmark,” Caspar Rawles, Benchmark Mineral Intelligence analyst, told Investing News Network in an email. Near-term nickel demand from the battery sector has been a small percentage of the total market and hasn’t had a significant impact on current pricing. In fact, out of 2.2 million tonnes of total demand in 2017, only 60,000 tonnes came from the battery sector. However, Rawles notes that “as the uptake of electric vehicles intensifies the numbers start to get quite staggering, aided by the move to high nickel low cobalt cathodes (NCM 811 primarily). We see demand exceeding 500,000 tonnes by 2026 and moving to over 1,000,000 by 2029-2030.”
By itself, this volume of demand paints compelling picture for future nickel pricing. But, there are price positive indicators on the supply side as well. “The battery industry can only use class 1 nickel (the most pure form with around 1 million tonnes produced each year, which is deliverable to the LME) means increasing supply will be difficult due to the lack of sulfide deposits globally,” add Rawles.
A tale of two nickels
The level of demand for nickel from the battery industry stands in the shadow of the much larger stainless steel market, however EV batteries may pose a greater supply challenge to the global nickel industry. The majority of the world’s nickel production is in the type preferred by the steel manufacturing industry: ferronickel, also known as nickel pig iron (NPI), which is not suitable for making EV battery cathodes. For that, manufacturers need battery-grade nickel sulfate, a nickel product derived from high-grade nickel sulfide deposits. Only about 10 percent of global nickel production is nickel sulfate. While it is possible to convert NPI to battery-grade nickel, the process is not at all economically viable.
Nickel sulfate supply strained under increased demand
Further complicating the supply picture is the scarcity of nickel sulfide projects either in production or development following the depressed price environment in the first half of this decade, and new discoveries have proven hard to come by.
“The problem for the nickel industry is it’s not a macro issue; it’s not an issue where we’re going to run out of nickel, but the specific nickel that’s required,” Jon Hykawy, president of Stormcrow Capital, told INN at the 6th International Nickel Conference. “The specific chemistry and the specific purity that’s required for batteries is likely going to put a strain on the supply chain.”
A market in divergence
Supply and demand levels are already beginning to diverge, which is bound to translate to more upward pressure on nickel prices. This imbalance has also been tied to a divergence in prices for NPI and nickel sulfate, leading to the opportunity held in the proposed LME nickel sulfate contracts.
LME nickel sulfate contracts: No longer a niche product
The LME does have an existing nickel futures contract, the price of which remains linked to the NPI market because up until fairly recently, nickel sulfate has remained a niche market. “Electric vehicles are clearly the growth story for our industry,” said LME CEO Matthew Chamberlain, who believes separate LME nickel sulfate contracts will keep prices relevant to both the stainless steel and battery sectors. Along with other battery market metals lithium and cobalt, the nickel sulfate contract would be cash-settled against a third-party price index. “It would mark a change in tack for the LME, which has traditionally focused on commodity-grade refined products,” noted Bloomberg.
Impact on nickel miners and nickel investors
The underinvestment in nickel sulfide projects and the growing demand for battery metals are creating an ideal market environment for nickel sulfide miners. So, what would LME nickel sulfate contracts mean for investors in the nickel mining sector?
“As nickel sulfate is the ideal precursor for key elements of lithium ion battery cathodes, the creation of a future LME nickel sulfate contracts will provide investors with stable futures pricing for all manner of nickel sulfate applications,” Mark Appleby, President and CEO of Tartisan Nickel(CSE:TN) told Investing News Network. “This will allow the nickel sulfide resources held by companies like Tartisan Nickel to be fairly valued as an upstream supplier to principal battery metals applications with the best demand growth potential based on the EV revolution.”
Tartisan owns a nickel sulfide-copper-cobalt property in Ontario, Canada. The Kenbridge property, near Kenora, has a measured and indicated resource of 7.139 million tonnes at 0.62 percent nickel and 0.33 percent copper. The company is looking to advance the project through feasibility.
The surging growth in demand for battery-grade nickel and the divergence between ferronickel and nickel sulfate prices will no doubt have an impact on reshaping the nickel mining industry toward nickel sulfide projects. Even the major global miners are seeing the opportunity. BHP Billiton Ltd., one of the world’s top nickel producers, is switching output at its Nickel West project in Australia from briquettes to sulfate in order to gain more exposure to the EV battery industry.
Nickel has one of the highest-growth demand outlooks in the metals sector, a trend which analysts expect to continue well into the next decade. Both rising prices and a shifting demand landscape are creating a new growth market for investors looking to capitalize on the opportunities presented by the emerging market for battery materials.
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