Global base metals markets were weak throughout 2019, as trade hostility between China and the US drove both aluminum and copper prices to two-year lows, signaling a weak demand outlook for manufacturing commodities and a looming economic slowdown as the decade came to a close. But one outlier, nickel, defied the downward pressure other base metals markets saw. In September, nickel reached its highest price in five years, trading at over $18,000 per ton. By October, nickel prices were up nearly 70% year over year. The driving source of nickel’s growing popularity? The electric vehicle (EV) industry.
Though about 70% of annual nickel output is used in stainless steel production, the metal is also commonly found in the production of rechargeable lithium-ion batteries. These batteries are primarily composed of nickel and act as the primary source of power in electric vehicles. During the first half of 2019, the global EV industry absorbed over 27,000 tons of nickel, representing a 79% year-over-year increase and 21% of global demand for the metal.1 Increasingly high expectations for further growth in the EV market have been powered by policy and environmental regulations around the world. Nearly all major markets have fuel and emission regulations in place, and approximately 20 major cities worldwide have enacted plans to ban gasoline-powered cars by 2030 or sooner.2
In conjunction with increasing EV production, nickel usage and intensity per battery has also grown. Higher nickel content in batteries for electric vehicles both increases energy density and extends vehicle range, making nickel the preferred material among other battery commodities such as cobalt and lithium.3 Comparatively, cobalt and lithium prices were down 36% and 29% in 2019, respectively, largely driven by oversupply.
Nickel prices resisted, however, with its demand far outpacing supply. The gap has continuously grown due to the 10-year expected growth trajectory of EVs and the rarity of new nickel source discoveries. The global EV market grew to more than two million units globally in 2018, representing a 66% increase year over year, and over 100 EV model launches have been announced by numerous international automakers for 2020.4 Projections show that global electric car sales will reach at least 23 million units by 2030 to account for 20% of all passenger car sales.5 These figures support a bull case for nickel prices in the near future.
Additionally, supply disruptions accentuated the upward pressure on nickel prices. Nickel’s leading production country is Indonesia, which produces more than twice the tonnage of the metal each year than the second largest producer, the Philippines.6 Nickel prices soared in late August 2019 after the Indonesian government announced it would ban exports of nickel ore, sparking fears of global shortages. The ban was previously scheduled to begin in 2022 but was brought forward to January 2020. Approximately 25% of global refined nickel output will be lost as a result, leaving the market in a meaningful deficit according to demand forecasts.7 Other nickel shortages, including a waste spill at a large plant in Papua New Guinea, have further depleted global supply. Stockpiles at LME warehouses fell to their lowest levels in over 10 years in November 2019, dropping by over 200% over the course of the year.8
Costly (and lengthy) new exploration projects require nickel prices to hit the mid-$20,000s per ton to present a profitable investment.9 Nevertheless, EV producers are searching for opportunities to bridge the gap between their production estimates and the current supply outlook. BHP, Independence Group and other nickel mining rivals have scrambled to secure rights to explore land in Australia that they believe might hold additional nickel resources.10 Tesla has also announced its intention to increase nickel usage in its battery packs and eventually eliminate its use of cobalt entirely, making nickel exploration a top priority for the technology giant’s new projects.
However, nickel prices at such levels could be a factor in delaying an imminent EV boom. We can calculate nickel’s influence by backing into how much the nickel market price individually contributes to overall EV prices. Nickel content as a percentage of EV battery raw materials has grown to 80%, and raw material costs make up about 20% of total battery pack prices.11 The battery itself makes up about a third of an electric vehicle’s overall cost, and thus nickel’s individual contribution to EV prices is about 5.3%.12 Should nickel prices reach the mid-$20,000 range, the price tag of the resulting vehicles may not hit a competitive level, and consumer sentiment towards EVs as a reasonable personal transportation option won’t support the industry’s growth projections.
Commitment to electric vehicle development and the related battery production requirements imply higher demand for these materials in the automotive sector. Nickel supply shortages have raised several questions for the future of the EV market and the likelihood that ever-increasing output projections will not be met in the near term. Can the mining sector ramp up nickel production fast enough to keep up with EV market expectations? Where will this supply come from and can large companies afford the capital expenditures required to find it? More importantly, how will major changes to government regulations and battery-technology innovation provoke a vastly different outlook for the future of the EV industry? We will continue to watch these questions unfold as several major commodities will be affected, with nickel likely at the helm.
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3 S&P Global.
6 Seeking Alpha.
7 Wall Street Journal.
9 Wall Street Journal.