Nickel’s awkward position in the sustainability landscape: 2022 preview
With the energy transition underway globally, governments and companies have begun to set ambitious environmental goals for reducing emissions and operating in a sustainable way
Low-carbon nickel has come into focus while the battery industry develops and production ramps up. End-users are seeking supply agreements with producers who can offer low-carbon material to support the green credentials of their electric vehicles.
There is growing anxiety within the industry that producers who meet strict environmental criteria may not be able to compete with low-cost, high-carbon intensity producers in areas such as Indonesia and the Philippines.
“Mining companies that operate in western jurisdictions or [western] scrutiny such as the [European Union] or North America are severely handicapped compared to mining companies that are able to operate under less onerous oversight,” Giga Metals president and director Martin Vydra told Fastmarkets.
“We need global standards, that every country has to adopt for mining,” Vydra added.
This is largely due to the high capital intensity required to meet environmental and sustainability targets, alongside higher labor costs in regions like Australia and North America.
Companies such as Nornickel have budgeted to invest in the region of $6 billion into environmental, social and governance (ESG)-related activities, such as its sulfur dioxide capturing project.
Nornickel’s vice president of sales and distribution, Anton Berlin, previously expressed his belief that low-carbon material and standard nickel have very different economic values and therefore economic incentives must be provided for producers of low-carbon nickel.
This is an opinion held by others in the industry.
“You need to create a pricing equalization,” Vydra agreed, noting that if consumers were not willing to pay higher costs for cleaner material, governments need to introduce penalties on material that is not up to environmental standards to ensure a level playing field.
The EU has already laid out plans to introduce the Carbon Border Adjustment Mechanism (CBAM) with the intention of ensuring that imported products such as steel and aluminium meet environmental standards and are sourced from approved suppliers.
Whilst CBAM is an example of the EU taking a direct role in industry to ensure environmental standards are met, the mechanism does not yet include all base metals.
CBAM is intended to be broadened after the initial role out. If the scope of CBAM widens and the energy transition maintains pace, participants note that increased demand for nickel will also increase the questions about its sustainability credentials.
The reported industry average for carbon emissions is around 13 tonnes of carbon per tonne of nickel according to Nornickel, but others such as Vydra put the number closer to 36 tonnes of carbon per tonne of nickel. However, some projects can produce up to 90 tonnes of carbon per tonne of nickel. This is due to their reliance on coal for electricity, alongside other pollutants produced through toxic acid leaching processes.
Some companies are beginning to investigate initiatives for “low-carbon nickel.” Nornickel recently announced that they would be releasing carbon-neutral nickel through an exchange-traded commodity fund. This carbon neutrality is achieved via the use of carbon credits for reductions in emissions, since carbon-free production is not possible.
China’s upper hand
Chinese companies have a significant advantage in terms of production over their western counterparts, due to the well-integrated supply chain.
“The Chinese [companies] are not just looking at selling that nickel, they’re now integrating into the entire supply chain,” Vyrda noted, adding “they take the nickel, ship it to China, where they have a sister company that turns it into either stainless steel or now into a battery pre-curser.”
This enables the companies to have greater control over the production of material and allows companies to be able to be more competitive in low-price environments because they can absorb losses from raw materials with profits from other areas of the business.
This provides many of these companies a significant advantage over miners in the west with no integration, who are more exposed to changes in prices and competition from other mining operations.
Whilst Chinese companies have made significant steps to improve environmental and sustainability performances of mines in these areas through transitions to alternative power sources and tailings improvements, their ability to control production and operational costs provides them a significant advantage over other companies.
Current pricing landscape
“It all comes down to price and if people willing to pay more for ESG material” Fastmarkets analyst Andy Farida said.
Nickel prices in 2021 were driven upward by the tight supply situation. The three-month London Metal Exchange futures price nearly hit a year-high of $21,240 per tonne on November 24, while global LME warehouse stocks fell to their lowest levels since December 2019.
Though the futures price has come under pressure in December, prices are still significantly higher than the $17,375 per tonne from the start of 2021.
The supply tightness has also pushed physical premiums for materials such as briquette to nearly year-high levels globally following strong demand throughout 2021.
However, with the market trying to fill in the emerging tight supply, nickel producers are already looking at obtaining material from new sources.
In 2021, Tsingshan announced that it would utilize technologies to produce nickel matte, a battery pre-cursor material, from nickel pig iron in Indonesia. The announcement led to a price collapse in the LME three-month contract, which fell 8% to $15,895 per tonne.
Physical premiums have been impacted by Tsingshan beginning nickel matte production and increased availability of material in the market.
Fastmarkets’ nickel sulfate premium, cif China, Japan and Korea fell to $2,300 per tonne in December from $2,500 per tonne the month before due to an increasing amount of material available for conversion.
Despite this, the tight supply is set to continue into next year. According to Fastmarkets research, the nickel market saw a deficit of 115,000 tonnes in 2021, and analysts believe that will ease to 78,000 tonnes in 2022.
Nickel in batteries
Nickel, in the form of sulfate, is used in the cathode of lithium-ion batteries for electric vehicles (EVs).
Higher prices due to the tight supply and strong demand, paired with potential price increases in relation to environmental regulations could push some EV manufacturers to move away from nickel-rich batteries in favor of cheaper alternatives.
In 2021, there has been a significant increase in the adoption of alternative battery chemistries such as lithium iron-phosphate (LFP) batteries. Many EV producers in China now prefer LFP batteries and Tesla announced that it would be using LFP in all standard range vehicles globally.
However, participants in the nickel market are still bullish about the role nickel will have in batteries, since nickel-rich batteries offer greater energy density, and therefore longer ranges and faster charging times, which may be appealing to Western consumers.
While the battery industry continues to grow, this sector will see a sharp increase in its consumption of nickel with Nornickel forecasting that the battery industry could represent around 400,000-600,000 tonnes of demand by 2025.