NICKEL
Nickel Should be Two Things: Classy and Fabulous
May 2019
Nickel is important. Currently, this is largely because it is a key component in stainless steel—a commodity that forms the foundations of substantial parts of the global economy. There is a second, growing usage for nickel, however, that is shifting the way producers and consumers look at the nickel market: batteries—particularly for electric vehicles.

The difference between the two uses is quality. Not all nickel is created equal, and while stainless steel production can utilize both high-quality Class 1 nickel and lower-quality Class 2 nickel, batteries do not have that luxury. High-purity Class 1 nickel is a requirement for good rechargeable batteries. This is somewhat of a potential problem, given that much of nickel production’s capacity expansion over the past fifteen years has been for Class 2, and a substantial amount of currently-expected new capacity—from currently-defined reserves—will likely also be Class 2.

Currently, Class 1 nickel makes up around half of global supply. Even assuming that all available Class 1 nickel is suitable for battery production—which is not always the case—this is not an ideal ratio, given that future nickel demand is going to be increasingly driven by lithium-ion battery demand.

This potential shortfall could add costs onto the already-hefty price tag for nickel, and in turn, electric vehicles (EV). Producing a nickel-sulphate-based rechargeable battery for an EV—a non-rechargeable battery would hardly be much use—can account for up to 60% of the total cost of manufacture, despite ongoing cost savings and the reductions of other expensive battery metals like cobalt.

 

 

The market is likely to need several hundred thousand tonnes of extra Class 1 supply, much of which will likely come from new laterite-ore developments in countries like Australia. Laterite ore requires high-pressure acid leaching to extract, which can be a high-capital method—further increasing costs. Some currently-existing laterite operations produce Class 1 nickel from low-quality ores with large amounts of other metal contaminants but operating and processing costs for this method are high and unlikely to facilitate easy Class 1 capacity expansions in the future.

 

Battery Breakdown

As mentioned, the purity of nickel is crucial for battery construction. Batteries require highly pure nickel in order to easily create high-quality nickel sulphate—a mixture of 22% nickel in sulphuric acid. As mentioned before, theoretically all Class 1 nickel should be suitable for this purpose, but for optimal sulphate production the nickel is supplied in either powder, pellet, or briquette form—and not all Class 1 nickel is produced in such forms.

Attempting to use Class 2 nickel to make nickel sulphate is possible, but not entirely advisable. The additional purification and processing costs—required to ensure the proper dissolving of the nickel—quickly become prohibitive and erase many of the cost savings that are seen in purchasing Class 2, or in producing high-nickel-content batteries—which use nickel to in-part replace other higher-cost metals like cobalt.

Class 1 nickel powder can trade at a significant premium to standard nickel of 98.8%+, in much the same way that lower-quality ferronickel trades at a discount to standard nickel prices. Class 1 nickel powder can reach up to 35% premiums over standard pricing, largely boosted by the additional costs of processing and a tightening market as high-purity demand grows.

The uncertainty of future EV demand has given producers some hesitancy, however. While EV battery demand is expected to increase, the precise timing of this uplift has proven to be somewhat hard to pin down. Producers are not all ready to invest in a market with uncertain future demand based on a currently-maturing technology. While nickel prices look to remain high enough to incentivise the restart of some currently-idled nickel operations, a price drop could spook investors—and further delay the development of Class 1 nickel assets.