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Why rise in nickel price due to Russia-Ukraine war casts shadow on shift from fossil fuels to EVs

Russia accounts for about 11 per cent of the global supply of nickel ore, and 20 per cent of the world’s top-grade or Class 1 nickel.

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New Delhi: Between Western sanctions, a big bunch of export bans from Russia, and wildly fluctuating prices as a result of all the uncertainty, the Ukraine-Russia conflict has wreaked havoc on the global market for nickel — a key metal for industrial, military, construction, and transport goods.

Nickel also happens to be an essential raw material for rechargeable batteries, which are used in electric vehicles (EVs), sparking worries about the hoped-for move away from fossil fuels. Surging input prices, it is feared, could hinder ambitious EV-manufacturing plans.

On 31 March, the White House released a “fact-sheet” that said US President Joe Biden would issue a directive to authorise the use of the Defense Production Act to “support the production and processing of minerals and materials used for large-capacity batteries — such as lithium, nickel, cobalt, graphite, and manganese” so as to bolster America’s clean energy economy without reliance on China and other countries.

Amid such proclamations, one might assume that the high prices of nickel might have spiralling effects on all commodities that need it.

However, things are not that straightforward. In addition, there is some hope that countries like Indonesia may — at least in the long run — help close some of the gaps left by Russia.


Also Read: As nickel prices soar due to war, here’s what Indian steel makers are doing to cushion impact


Price peaks, disproportionate effects on some industries

Russia accounts for about 11 per cent of the global supply of nickel ore, and 20 per cent of the world’s top-grade or Class 1 nickel.

On 8 March, the country, as a response to sanctions against it, announced an export ban on more than 200 products. While this list did not include energy and metals, including nickel, the announcement was enough to send prices into a wild spin.

Soon after Russian President Vladimir Putin announced the ban, nickel prices at the London Metal Exchange (LME) more than doubled to about $100,000 per tonne, following which the exchange had to halt the trading of the metal. Since then, the prices have calmed down, but they are still far from pre-war levels.

As of 1 April 2022, the price was $33,223 per tonne, which is about 36 per cent more than it was on 25 February ($24,361 per tonne).

Graphic: Ramandeep Kaur

However, this volatility will impact some industries more than others.

The LME trades only in Class 1 — 99.8 per cent pure — nickel. This globally traded nickel is “less than a quarter” of the total finished nickel supplied to the market, according to a report by the multinational financial services company ING. What this means is that rise in nickel prices will hit those commodities that need the really high-grade stuff.

Class 1 nickel, which is extracted in various forms — powders, pellets, briquettes and cathodes — is essential to produce certain types of alloys and EV batteries, but this is not the major driver of the nickel market.

According to a 2020 report by global consulting firm McKinsey’s, however, more than two-thirds (about 73 per cent) of the nickel market is driven by stainless steel, while batteries represent only 5 to 8 per cent.

Now, stainless steel is not solely dependent on Class 1 nickel. A vast majority of stainless steel products can make do with Class 2 nickel, which comes in the form of nickel pig iron (NPI) and ferronickel.

In this area, Russia does not have such a great edge.

Enter, Indonesia

Indonesia has about a third of the world’s nickel ores and is the biggest producer of the metal. In 2020, it produced 0.76 million tonnes of nickel, which is about a third of the global production followed by the Philippines (0.32 million tonnes) and Russia (0.28 million tonnes).

But, a vast majority of Indonesia’s output comprises lower quality Class 2 nickel (NPI), which it exports to China for manufacturing stainless steel.

In terms of Class 1 nickel, the McKinsey’s report cited earlier noted, Indonesia produced only 6.8 per cent compared to Russia’s 21.1 per cent (in 2019).

Part of the reason why EV manufacturers have been so dependent on Russia was that after 2012, when China started using NPI for stainless steel, the steel prices came down drastically. This incentivised producers like Indonesia to produce more and more of Class 2 nickel.

Graphic: Ramandeep Kaur

Back then, the demand for EVs was not as high as it is today. According to projections by the intergovernmental organisation International Energy Agency (IEA), the “global EV stock across all transport modes (excluding two/three-wheelers) expands from over 11 million in 2020 to almost 145 million vehicles by 2030” — this represents an annual average growth rate of nearly 30 per cent, with EVs estimated to account for about 7 per cent of road vehicles by the start of the next decade.

In this scenario, Indonesia has sensed the opportunity to channel some of its big nickel ores to the EV industry.

According to Isabella Huber, visiting fellow in the Energy and Climate Change Program at the Centre for International and Strategic Studies, Indonesia does have a strategy to tackle this demand.

While Indonesia is richer in a laterite called limonite — a good source for Class 2 nickel production — and does not have such abundant reserves of sulphur ores that are ideal for producing Class 1 nickel, it is devising workarounds to this issue.

In May last year, the country commissioned its first plant to process nickel for use in batteries — a joint venture between China’s Ningbo Lygend and Indonesia’s Harita Group. This project used a process called High Pressure Acid Leach or HPAL to convert laterites to mixed hydroxide precipitate (MHP), which can be further refined to produce Class 1 nickel. In February this year, the China-Indonesia joint venture mentioned earlier made its first batch of MHP.

Indonesia currently has about seven other such projects in the making, but experts caution against being too optimistic at this point.

Speaking to ThePrint, Huber drove home the point that Russia’s Norilsk Nickel currently produces 17 per cent of the world’s Class 1 nickel. “The nickel production for the battery supply chain in Indonesia just started in 2021 and could not replace Russian supply. The growing EV industry needs Indonesia’s nickel as an addition, not as a replacement,” she said.

(Edited by Asavari Singh)


Also Read: India’s big wheat opportunity: How Delhi can make up for export shortfall from Russia, Ukraine


 

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