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Electric vehicles and the nickel supply conundrum: Opportunities and challenges ahead

  • Featuring
  • Leah Chen    Scott Yarham
  • Commodity
  • Metals
  • Topic
  • Battery Metals

As many countries shift towards achieving a more sustainable future, major economies are also adopting and promoting electric vehicles in an effort to reduce carbon emissions from traditional internal-combustion engine, and ultimately help the transport and power sectors contribute towards reaching the 2-degree C Paris Agreement goal.

One of the key commodities to realizing this ambition is nickel. Unlike other battery materials such as cobalt and lithium, nickel is unique in not being primarily driven by global battery demand. About 70% of the world's nickel production is consumed by the stainless steel sector, while batteries take up a modest 5%.

S&P Global Market Intelligence forecasts global primary nickel consumption to rebound year-on-year due to stainless steel capacity expansions in China and Indonesia. Demand outside China is expected to be the main driver of global growth in volume terms in 2022 and global consumption is forecasted to rise at a compound annual growth rate of about 7% between 2020 and 2025.

The battery sector's nickel demand is also expected to accelerate substantially, with many predicting it to near 35% of total demand by the end of the decade.

But while based on the above supply of nickel seems abundant, the production of nickel-rich cathodes in lithium-ion batteries requires a more stringent, high-purity Class I nickel (i.e. greater than 99.8% purity) as feedstock to produce the key ingredient: nickel sulfate. Traditional stainless steel feed of nickel pig iron (NPI) and laterite ores have not been suitable for the production of such batteries.

Concerns surrounding the availability of high-grade nickel supply to achieve sustainability goals of governments and original equipment manufacturers have been growing for some time. Developments and solutions have surfaced in the industry this year as the market adapted to rising battery metals demand.

One such development has been the conversion of NPI into matte, a suitable feedstock to produce nickel sulfate—but this solution has raised a number of questions and concerns, including the high carbon intensity of the conversion process and whether non-Chinese OEMs will accept such a feedstock within their supply chains.

The role of nickel amid the 'green' revolution

There has been a notable increase in consumers opting for electric vehicles over traditional internal combustion engine vehicles.

In 2020, 75% of the new vehicle sales in Norway's Oslo were EVs—a major shift from 2010, when 75% of the new private vehicle were diesel. China's Shenzhen was also the first city in the world to make its buses fully electric in 2017.

Latest statistics from China Association of Automobile Manufacturers showed that total new energy vehicle production from January to November broke historical records at 3.02 million units —growing 167.4% in comparison with the same period in 2020 at 1.28 million units. NEV sales for the same period surged 166.8% to 2.99 million units.

CAAM projected 2022 annual NEV sales to hit 5 million units, up 47% year on year. China's Electronics Chamber of Commerce and National Federation of Industry and Commerce Automobile Dealers have raised EV sales forecasts thrice this year, with the latest projection released Dec. 14 looking at a total 2021 annual sales of 3.4 million units.

According to International Energy Agency's Global EV Outlook 2021, the number of EVs on the road across the globe hit 10 million in 2020, a 43% increase from 2019. A Bloomberg New Energy Finance report, meanwhile, projects global passenger EV sales to rise from 3 million in 2020 to 66 million in 2040, even without further policy support.

Nickel is expected to play an essential role amid spectacular projections in EV growth and revolutionary changes in the future of travel. Nickel increases an EV's energy density and therefore the overall driving range. As car manufacturers improved on the energy density of batteries over the years, configurations of batteries have also evolved—from NMC 3-3-3 (three parts nickel, manganese and cobalt) to the latest NMC 8-1-1 (eight parts nickel, one part manganese and cobalt).

But there's more to the supply concerns than just the projected increase in nickel demand. There has been a lack of significant nickel sulfide ore discoveries over the last decade and a similar shortage of new nickel sulfide projects planned in the medium term. Nickel sulfide deposits account for the smallest portion of the world's nickel assets even though it contains very high purity that is befitting for battery-grade nickel sulfate. And a significant portion of the known sulfide projects are already operational.

Both nickel sulfide and laterite ores are currently used mainly to produce nickel products for stainless steel and alloys, pulling available supplies away from the battery sector.

In an attempt to make up for the shortage in nickel sulfate, some producers have been dissolving nickel briquettes (99.8% grade) with sulfuric acid. This switch has placed negative pressure on LME nickel briquette stocks, which have fallen 40.4% from Sept. 8 to 110,358 mt Dec. 7, according to Market Intelligence research analyst Jason Sappor.

Discovering fresh nickel sulfate supply is a pressing issue that battery makers, precursor producers and OEMs are scrambling to resolve.

Supply of battery-grade nickel sulfate shifts, but is it sustainable?

Many producers have sought alternative solutions to supply nickel sulfate.

China's Tsingshan Holding Group Co., the world's largest nickel producer, said it would be supplying nickel matte derived from converted NPI from its operations at Indonesia Morowali Industrial Park, which would later be further processed to generate battery-grade nickel sulfate. It would supply 100,000 mt of nickel matte to Chinese companies Huayou and CNGR Advanced Materials over a one-year period, with the first batch of nickel matte produced Dec. 8.

While Tsingshan's plans to convert NPI to an intermediate nickel matte diverges from the traditional production process , it is not an entirely new technology. Brazil's Vale employs laterite nickel ore to produce nickel matte, while France's Eramet also previously converted a portion of its ferronickel output to produce nickel matte at its Donaimbo operation in New Caledonia.

Similarly, in April, Chinese new energy materials manufacturer CNGR announced that it would partner with Singapore-based Rigqueza International to establish a joint venture plant in Sulawesi, Indonesia, to produce nickel matte.

Changsha-based CNGR plans to produce 30,000 mt of nickel matte per annum, in a $243 million smelting project in Tsingshan's IMIP site. The first $81 million phase is expected to produce 10,000 mt of matte on a nickel contained basis, as per a filing with the Shenzhen Stock Exchange.

These developments have unsurprisingly caused a stir in both the physical and papers markets, sparking conversations around whether an old technology of producing nickel matte might serve as a fresh solution in easing supply tightness in the nickel market in the long run. Tsingshan's March 2021 announcement saw nickel prices plunging, turning the bulls to bears as the market anticipated more supply coming into the market to ease the tightness in nickel sulfate.

Nickel prices

The LME nickel price plunged 9.31% to reach $16,144/mt on March 4, the lowest since December 2020. Its counterpart on SHFE also fell on the same day, with the SHFE March nickel contract closing at Yuan 130,320/mt, down Yuan 7,630/mt day on day, reaching the lowest level since February 2021.

S&P Global Platts assessed spot battery-grade nickel sulfate, with minimum 22% nickel content and maximum 100ppb magnetic material, at Yuan 37,000/mt DDP China March 3. Prices fell for five consecutive weeks to reach the lowest level this year at Yuan 31,000/mt on April 7.

Despite these advancements and nickel supply potentially being eased in the short term, questions loom concerning the carbon footprint of such a conversion process, and whether this is indeed a sustainable solution for the foreseeable future especially in the backdrop of global decarbonization initiatives.

An old technology to solve a future problem?

Other alternatives have also been explored in recent years to address the possible shortage in nickel sulfide deposits, such as processing lower-grade laterite material into intermediates before reaching battery quality and the use of high-pressure acid leach (HPAL) technology.

But according to MI, development of new HPAL projects in Indonesia have been conventionally quoted as requiring primary nickel prices to reach as high as $22,000/mt to be profitable. Besides the need to ensure that falling nickel prices do not overly impede producer margins, HPAL operations also generate environmental concerns, especially regarding waste disposal.

Tsingshan's bold move in attempting to resolve the industry's supply shortage conundrum to keep up with the bullish EV demand had been labelled as "a game changer" for the nickel market, not only for addressing supply concerns outlined earlier, but also in the higher margin that NPI provides as it is substantially cheaper.

However, there are doubts that OEMs outside of China will be willing to accept batteries that contain nickel sulfate produced from matte, also due to the environmental impact involved in its production process.

With clear pledges to make their supply chains carbon neutral over the next decade or so, there is concern that automobile producers outside of China will not use batteries containing materials that involved energy-intensive production, which translates to higher carbon emissions.

Citing data from the Nickel Institute, Sappor said the global warming potential of nickel in ferronickel production – ferronickel being a higher-grade version of NPI – is over three-times higher than that LME-grade class 1 nickel production.

According to independent nickel consultant Trytten Consulting Services, which conducted a preliminary analysis of generic NPI and sulfide facilities, producing nickel matte from NPI is a very greenhouse gas-intensive route that does not lend support to the ultimate goals of decarbonization. Based on the experimental model to test the GHG intensity of NPI production and the nickel matte conversion process by comparison with existing global nickel facilities, NPI produces much higher carbon emissions (Scope 1+2) than other nickel laterite or sulfide processes.

A "conventional" 1% nickel in sulfide ore would be expected to emit less than 15 t CO2e/t Ni, and potentially under 5 t/t Ni depending on the electrical power sources at the mill and smelter, compared to NPI whose emissions are expected to be over 60 t/t Ni, and potentially close to 100 t/t Ni for lower-grade ores.

From the model, it is evident that nickel sulfate originated from sulfide ores provide a much lower carbon footprint than nickel sulfate produced from NPI, no matter the sulfide ore grade.

While western OEMs are certainly seeking cost-effective solutions to improve battery raw material supply, they are unlikely to compromise on their green credentials. Even with Tesla declaring publicly their biggest concern is nickel supply in the future, it will almost certainly insist on more sustainable options, given their track record of championing environmentally friendly initiatives.

In a company statement, Tsingshan has said that it aims to "uphold and promote energy conservation, emission reduction, and a low-carbon-footprint environment." With the EV industry playing a key and leading role in the energy transition movement, the Chinese nickel giant will inevitably face continued pressure to uphold the current green standards.

The upsides and downsides

All things considered, the NPI-matte conversion route certainly offers the industry more options in easing raw material tightness at least in the short term, and in lowering prices overall and alleviated costs to Asian cathode producers. Battery makers could redirect these cost-savings to invest in potentially more cost-effective and sustainable operations.

However, if producers of nickel matte do not make the adjustments and investments needed to address carbon intensity concerns, this will almost certainly be problematic in deploying this in EVs produced outside of China. Furthermore, competing battery chemistries, which are cheaper and do not utilize nickel, will continue to benefit from growing research and development in improving ranges and charge times.

With supply-shortages looming over the horizon, more actions are needed to mitigate future challenges in the nickel sphere.