Salim Bhabhrawala, critical minerals sector lead at the Commerce Department’s Office of Materials Industries (OMI), opened the Spotlight on Nickel/Stainless: Focus on Future Demand session March 22 at ISRI2022 with a joke. “If I had a nickel for every time someone mentioned nickel [markets] recently, I’d probably be a millionaire.” Chuckling at his comment, the audience was ready for an analysis about how the war in Ukraine, rise of electric vehicles (EV), and price swings on the London Metal Exchange (LME) all impact the nickel market.
Bhabhrawala was joined by Jason Schenker, president of Prestige Economics, and Edward Meir, head of the commodity research group at ED&F Man Capital. ISRI Past Chair Doug Kramer, president of Kramer Metals, moderated the event.
Bhabhrawala noted the automotive industry is looking to shift away from fossil fuel and use nickel as an integral metal in lithium-ion batteries for EVs. But he added there may not be enough nickel. “We have two major industries, steel and automotive, competing for a valuable input at a time of great market disruption, is there enough nickel for the domestic market?” he asks.
The war in Ukraine is impacting nickel as well. Not only is belligerent Russia the third largest global producer of nickel, the U.S. only has one active nickel mine and no primary processor. Bhabhrawala says what’s happening with nickel is a microcosm of other metals. “The U.S. is not processing critical minerals in the confines of our borders,” he notes. “It’s having adverse impacts on the supply chain. Our No. 1 importer of the minerals is China and because of that we’re vulnerable as an economy. The U.S. has a myriad of challenges related to critical minerals and the supply of nickel.”
He described how the U.S. government has responded including executive orders on critical minerals and the OMI’s critical minerals workplan. “I think there are a lot of areas for domestic and foreign allies and trade partners to work together to find synergies,” he adds.
Schenker discussed some recent positives in the nickel markets including record high prices and strong expansion of manufacturing. Then he turned to the Federal Reserve’s announcement on March 16 to raise its target federal fund rates. “They raised rates by a quarter percentage point; from near zero, the rate is now in a rage of 0.25% to 0.5%,” Schenker says. “That’s still pretty low but through the end of 2023 the members of the Fed are forecasting raising the rates by 25 points 10 times.”
Long-term nickel demand may be impacted by issues including sustainability and environmental, social, and governance (ESG) goals. Schenker referred to a recent analysis where the top 25 largest companies in the world were asked about their plans to reach net zero greenhouse gas emissions by 2050. “Some responded by committing to planting trees, but many of those companies just don’t know how they plan to reach that goal,” he says.
According to data from the International Energy Agency, US Geological Survey 2021, and IMF staff calculations the current production rates of some important metals, including nickel, are likely to be inadequate to satisfy future demand and to meet the 2050 net zero emissions goals. “We only have 35% of the nickel to get there, and demand for the metal will go up a lot,” Schenker says.
Meir discussed the LME’s March 8 decision to suspend trading in its nickel market after monthly nickel prices skyrocketed, leaving brokers unable to pay margin calls against short positions. “If [LME] didn’t cancel, then six or seven members could have defaulted and that would have caused a cascading influence for the financial markets,” he explains.
Some lessons the LME could take from this experience would be to reevaluate the margin levels, he says. “There needs to be gradation of margin levels depending on position side. When you’re in this type of seizure, the LME may need to grant some relief on when the margins are due,” Meir says. The exchange could look at changing its margin requirements and there has to be more transparency in the markets, he added.
Meir doesn’t believe nickel is very bullish. He says taking away the entire Russian supply of nickel, 200,000 tons, would leave the market in a deficit by 100–200 thousand tons, which he says is not a huge number. “[Such a deficit wouldn’t] warrant the $50,000 nickel prices, which I think is somewhere around its current levels,” he says.
He anticipates the other large problem facing the market is the push toward EVs, specifically automakers’ deadlines to transition completely from internal combustion engines. “We simply don’t have the minerals to meet those deadlines,” he says. “So, two things could happen: The deadlines could get extended, which I think will happen, or the battery recipes themselves could change.”
Photos courtesy of ISRI.