Analysts are concerned that traditional production focus on stainless steel may prevent adequate supply of battery-preferential nickel coming online even though this sector will eventually eclipse stainless steel demand.

“The exciting area for nickel at the moment is that more nickel will be consumed in lithium-ion batteries and will become [a] bigger [nickel consumer] than stainless steel in time," Fastmarkets head of base metals and battery research, William Adams, said.

Fastmarkets research expects more than 500,000 tonnes of nickel to be used in lithium-ion batteries for electric vehicles (EVs) by 2025, compared with 100,000 tonnes in 2018.

The anticipated transition to 8-1-1 NCM chemistry batteries for EVs, which will comprise eight parts nickel to one part cobalt and one part manganese, will further bolster this requirement, though the timeline for market uptake thereof is more uncertain.

But while nickel production has focused on ensuring supply for stainless steel, which occupies a 68-70% market share, 50% of which comes from China, the battery sector has been overlooked.

Current stainless steel favorite nickel pig iron (NPI) has so far outstripped supply growth for preferential battery-grade materials including nickel sulfate since 2013.

“We saw nickel reach approximately $50,000 per tonne in 2006-2007 and become prohibitively expensive for Chinese stainless steel producers,” Adams said. “Instead they decided to get their primary nickel units from NPI, so hence the birth of this boom in NPI and nickel ore mining in Indonesia and the Philippines.”

Despite the market recording its fourth year of refined deficit – estimated by the International Nickel Study Group (INSG) at 47,000 tonnes for 2019 – nickel production has ramped up over the past decade in line with increased stainless steel demand.

“There is no shortage of nickel, but there may be a shortage of the nickel needed by the battery industry – namely nickel sulfate,” Adams said.

NPI No.1
Global primary nickel supply rose by 230,000 tonnes between 2013 and 2018, but overall supply growth for the period was weighted in favor of nickel pig iron, the supply of which grew by 256,000 tonnes.

There has been a comparative drop is nickel powder and briquettes supply, with ferro-nickel production increasing by a lesser 100,000 tonnes, while nickel sulfate output rose by just 46,000 tonnes.

Stainless steel demand for nickel is set to grow by 5% in 2019, while Fastmarkets anticipates that battery demand for nickel will increase to a 15% market share by 2025 from 4% currently.

Supply growth has not been able to meet demand over the past couple of years,” Roskill senior analyst Oliver Masson said.

And while LME nickel stocks continue to decline rapidly, standing at an 11-year low of 69,162 tonnes on October 29, primary units will become even harder to come by.

LME stocks declined by almost half in September 2019 on Asian stockpiling initiatives to ensure supply going into 2020 on news that Indonesia was expediting its ore ban to January 2020 from 2022 on August 30, taking a potential 390,000 tonnes of ore offline from that time.

During Roskill’s Battery Raw Materials insight on Tuesday October 29, Masson asked where class 1 material for batteries could be found, before answering his own question: “a reduction in stainless steel class 1 use could free up units for use in batteries”.

But this looks unlikely given the stainless steel industry’s alleged stockpiling activities post-pre ban, which indicates that stainless steel consumers are prepared to invest in class 1 units in the face of a threat to NPI supply from Indonesia, casting a shadow over availability for the battery market.

HPAL harmony?
But Adams asserts that there could be some breathing space in Chinese production that would see more class 1 nickel units available for batteries.

“Nickel producers are in a fortunate position with a strong market in stainless steel. But there has been such a stainless steel production increase in Indonesia in recent years that there is a flood, so we might see demand growth there fall back a bit,” Adams offered as a potential solution.

But more likely, pipeline high-pressure acid leaching projects such as Papua New Guinea's Ramu, which has been mired in environmental controversy, will have to come online and produce the sulfate needed.

“There is a good chance of high-pressure acid leaching (HPAL) projects becoming operational but most don’t have environmental licenses in place which could increase costs and cause some delays – it sounds like there could be some environmental headaches ahead,” Adams believes.

“The market is really waiting for HPAL operations, the cavalry for the battery industry, which needs more class 1 nickel and it's most likely to come from HPAL,” he added.