Nickel rebound gathers pace on electric car boom

Electric vehicles are likely be powered by batteries using nickel-containing chemistries © Reuters

Nickel broke above $12,000 a tonne on Tuesday after a leading forecaster said the outlook for the metal was one of deepening deficits, falling warehousing stocks and ultimately rising prices.

Nickel, which is primarily used to make stainless steel, has been one of the least-liked industrial metals of recent years, weighed down by excess supply and bulging stockpiles. But sentiment has started to shift as analysts and investors identify the fact that electric vehicles are likely be powered by batteries using nickel-containing chemistries.

Unlike other key battery materials such as lithium and cobalt, nickel is easier for investors to trade via futures contracts in London and Shanghai. There are also more ways to establish exposure to the metal through the equity market and large listed mining companies such as Glencore, Nornnickel, Sherritt International and Vale.

In a note, Wood Mackenzie said the expected boom in battery-powered vehicles would aggravate a structural shortage in the nickel market it sees emerging between now and 2025.

"The dominant lithium-ion battery type for electric vehicles is expected to have a nickel chemistry," said Sean Mulshaw, principal analyst at Wood Mackenzie. "Sourcing this quantity of nickel will be a challenge as most of the incremental supply through to 2025 will be [either] ferronickel or nickel pig iron, both of which are unsuitable raw materials for nickel sulphate batteries."

Wood Mackenzie expects sales of passenger EVs to rise from 2.4m in 2016 to 14.2m in 2025. Based on that forecast — which is at the more conservative end of market expectations — it sees nickel demand in batteries rising from 40,000 tonnes to 220,000 tonnes in 2025.

"When all other battery applications are included, such as consumer electronics and energy storage, another field of potential substantial future growth, this figure increases to 275,000 tonnes of nickel demand, approximately 12 per cent of global supply," said Mr Mulshaw, adding that the key question facing the market was if there was enough nickel to feed such future demand.

Nickel for three-month delivery on the LME rose as high as $12,080 a tonne, before retreating to trade $11,970, up $60.

Since falling below $9,000 a tonne in May, the metal has rallied almost 35 per cent helped by the hype around electric vehicles, accelerating global economic growth and more recently China's pollution crackdown which is threatening to curtail output in a key producing province.

Copper also moved higher on Tuesday after Goldman Sachs, previously one of the most bearish voices in the market, said the metal's bull run of more than $7,000 a tonne was grounded in fundamentals and not speculation.

"We believe the current level of copper prices is largely justified by strong and synchronous global growth, the US dollar depreciating and repeated disappointments in copper mine supply," said Goldman analyst Hui Shan.

The bank is now forecasting a 130,000 tonnes copper market deficit in 2018, versus a 150,000 surplus previously, as strong global growth boosts demand.

"Combining our supply and demand balance forecast with our forward views on growth and currencies, we believe the 2011-16 surplus market is over and copper is poised to go higher, with the potential to surpass $8,000 by 2020," said Ms Shan. Copper rose $21.50 to $7,034 a tonne.

Elsewhere, zinc added $18.50 to $3,186 a tonne. On Monday, Hindustan Zinc, part of the metals empire of Indian tycoon Anil Agarwal, revealed it had locked in prices, and sold forward 220,000 tonnes of zinc production at $3,084 a tonne.

Zinc, which is used to galvanise steel, has risen 24 per cent this year. Some analysts think the price could fall next year if Glencore starts to bring back 500,000 tonnes of supply it mothballed in October 2015.

Source: Nickel rebound gathers pace on electric car boom