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Battery-Grade Nickel Supply Will Suffer As Major Nickel Discoveries Slump

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Battery-Grade Nickel Supply Will Suffer As Major Nickel Discoveries Slump

Our analysis of nickel discoveries has identified 50 major discoveries made from 1990 to 2019, containing 96.4 million tonnes of nickel in oxide and sulfide deposits. Three were discovered in the past decade and account for only 7% of the total nickel discovered — a sharp decline from the 1990s, when new nickel discoveries were much more common. Nickel sulfide deposits (currently the most reliable source for class 1 nickel) account for only 19%, or 18.1 Mt, of the nickel in these discoveries. Given the forecast demand increase for battery-grade nickel in the upcoming years, the pool of quality assets that can easily produce class 1 material is shallow.

Discovery slump to possibly constrain class one nickel supply

We forecast that nickel demand over the long term will be driven by class 1 nickel, primarily for use in batteries. Although both oxide and sulfide ores can be converted to class 1 nickel, processing of sulfide ores is technologically easier. Nickel laterites (oxide) are the dominant ore type in existing major nickel discoveries, however, hosting more than 80% of the nickel content. Of the 10 sulfide discoveries, only 1, Vale's Voisey's Bay in Canada, is currently in production, leaving nine deposits hosting 16.5 Mt of nickel available for development. Of these, only three have a completed feasibility study and could move towards production over the next several years.

Companies in Indonesia are aiming to process nickel laterite ores — typically used for nickel pig iron and ferronickel class 2 nickel products for the stainless steel industry — into battery-grade nickel sulfate through the high pressure acid leach (HPAL) process. The economic feasibility of utilizing this technology remains questionable, however. Aside from a high operating cost, it comes with environmental concerns, as it is prone to acid spills, as happened at Vale's Goro mine in New Caledonia in 2014.

COVID-19 halts price recovery

Like all industries, the metals and mining industry has undergone some major disruption due to the COVID-19 pandemic, which started in late 2019 and is still impacting the global economy. While nickel supply has been affected as numerous operations globally went on lockdown, demand has also been affected. The pandemic caused the LME three-month nickel price to drop to US$10,806/t March 23, its lowest level since June 2019. As discussed in the latest edition of our Nickel Commodity Briefing Service, we expect that the combination of depressed global primary nickel demand due to COVID-19 and strong growth in Indonesian primary nickel output will result in a significantly larger primary nickel market surplus in 2020 compared with 2019. This will drive an 11% drop in the average LME nickel price this year, which is likely to further disincentivize the search for new nickel deposits. A projected demand increase for nickel, especially from the electric vehicle sector, could however surpass the metal's supply, leading to the rise in nickel prices that will be required to promote additional discovery-focused efforts to find new nickel deposits.

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