Securing IRA-compliant nickel units to get tougher | Hotter Commodities

That’s because it’s widely expected that the US president-elect will adopt a zero-tolerance approach to allowing Chinese owned or operated supplies of raw materials like nickel to qualify for credits under the IRA.

Washington sources told Fastmarkets that one of the first acts of the new administration next year will be to use the rulemaking power of the executive to make fewer electric vehicles (EV) qualify for IRA credits. The mechanism by which they will do this, pundits say, is to make the Foreign Entity of Concern (FEOC) rules even harder to qualify for.

Qualifying was already tricky. A vast portion of nickel was theoretically removed from IRA-compliance when the US Department of Treasury released its definition of a FEOC for the purposes of the act almost a year-ago.

Back then, the Treasury said that companies that have a more than 25% ownership or control by a FEOC – including board seats, voting rights or equity – would not be eligible for tax credits available under the IRA.

At the same time, EV tax credits available through the IRA require batteries be built with at least 40% of the value of their minerals coming from the US or a country with which it shares a free trade agreement; a percentage that increases annually, reaching 100% by 2029.

With FEOC nations being China, Russia, North Korea and Iran, that pretty much removed the majority of nickel being produced in Indonesia, because it has a Chinese shareholder base.

Despite all this, allegations have since arisen that nickel is being brought into the US claiming to be IRA-compliant when it actually is not.

Fastmarkets understands there has been a flurry of behind-the-scenes activity in Washington in recent months, with industry experts and lobbyists sounding the alarm that schemes to evade FEOC rules have been in play.

A change to the FEOC rules comes as western companies remain active in Indonesia and elsewhere, in partnership with Chinese corporates.

That includes US auto firm Ford Motor Company and Brazilian miner Vale, which have an equal joint venture with China’s Huayou Cobalt to build a nickel plant in Indonesia by 2026.

Ford has already faced a backlash at home after it announced plans to use battery cell technology from Chinese firm Contemporary Amperex Technology Co., Limited (CATL) at its planned $3.5 billion battery cell plant in Michigan.

Similarly, fellow US automaker General Motors’ investment in the production of EVs in Indonesia is part of a joint venture with Chinese firms SAIC Motor Corp Ltd and Wuling Motors.

It also includes Eramet’s Weda Bay project, which is 51.3% owned by China’s Tsingshan Holdings.

Pundits say the 45X Advanced Manufacturing Production Credit, which is currently available to any entity in the US, is also expected to be prohibited for FEOC.

Price, projects

All of this raises the stakes on securing IRA-compliant nickel, produced by non-FEOC countries, at a time when the price of nickel isn’t exactly incentivizing new production capacity.

Over the last year, the world has watched as sustained lower prices have undermined the economics of current IRA-compliant nickel in countries like Australia and New Caledonia.

Miners including BHP, Glencore, Wyloo, First Quantum and IGO have all been forced to make tough decisions on projects in response to various factors, with the nickel price environment being a key determinant.

While London Metal Exchange nickel prices have strengthened in recent weeks, they are still more or less where they were a decade ago.

Given that the US EV battery manufacturing sector is largely focused on producing nickel-based batteries, securing non-FEOC material going forward is going to be all the more critical.

There are likely to be a lot of calls going into existing IRA-compliant nickel producers to lock-in units.

Biden-administration-favored projects such as Talon Metals’ Tamarack project and Eagle Mines’ extension project are also likely to be popular among automakers and battery makers looking to secure supplies.

So, too, are projects in other western nations, including Canada, Brazil, Australia and elsewhere.

Fastmarkets estimates that just 8-9% of world mined nickel production, 4% of intermediates supply and 12-12.5% of refined supply is likely to be IRA-compliant between 2025 and 2027. With new projects in the pipeline, those figures rise to 10%, 4% and 13% respectively by 2034.

It was already going to take a wholesale rethink of exploration, technological innovation, permitting and financing through key stages in the US and among its allies in nickel to reach the supply chain security that’s being sought. With zero-tolerance on FEOC going forward, nickel observers say solving those challenges is set to become even more urgent.

In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Sign up today to receive Andrea’s content as it is published.