The rise of electric vehicles may bring transformation to the nickel market. According to Trafigura Group Pte chief economist Saad Rahim, nickel sulfate is the main ingredient of lithium-ion batteries which help power electric cars. Once the vehicles become mainstream, which may be sooner than consumers think, the demand for nickel will skyrocket.
“When you look structurally, we should start to get bullish now,” said Rahim to Bloomberg. “Are you going to be able to meet that demand when the time comes, given underinvestment [on] the supply side?”
According to Glencore Plc, to meet the needs of the automobile industry, nickel production would need to increase by 1.2 million tons in the next 10 years. That’s more than double the current global production. However, those in the nickel market aren’t intimidated. On the contrary, the market itself is known for its terrible reputation what with unprofitable operations.
When Glencore Plc took over Xstrata, the business also took over an Australian nickel mine Xstrata had purchased in 2007 for the total of $2.4 billion. However, when it sold in 2015, the mine was purchased for only $19 million.
“The nickel industry’s been a bit of a dog since about 2007,” said McKinsey and Co. partner Oliver Ramsbottom. It was in 2007 that low-grade nickel supply began to make its way into the market, sending the metal crashing from its peak of $51,600 a ton to $11,870. The battery industry for electric vehicles could very well revive the nickel market back to its former glory.
The metalworking industry has also been seeing a positive transformation. As of 2009, green power and environmental businesses have been in demand for those with metalworking skills as newer designs call for innovative construction. Skill in metalworking is necessary for proper machining. Without metalworking fluids, in particular, and those who know how to operate them, green power machines wouldn’t be able to cool, have chips removed, be lubricated to avoid heat damage, or control corrosion.
Because nickel sulfate is ultimately cheaper than cobalt, which has recently surged in price, Rahim estimates that future electrical batteries will be using more nickel. However, because electric vehicles are still considered a niche market, many analysts are wary of nickel oversupply.
Compared to the five to 10 years epoxy can last on concrete flooring, an electric car engine can last over 50 years, but how long the vehicle can run on a single charge still has many Americans dubious. What’s more is that Indonesia and the Philippines, the sources of the nickel market’s initial downfall in 2007 according to Bloomberg, are now beginning to export nickel ore again.
“For years, the market has completely dismissed the idea that something positive could happen in nickel,” said Blenheim Capital Management senior research analyst Ingrid Sternby. “With the recent announcements about Indonesia and the Philippines, it’s easy to see why the market is still scary enough for people to not want to be involved.”
To save on potential investment losses, many of those in the nickel industry have considered waiting until a deficit has been created before considering mining for more nickel. The confidence in the electric car industry exhibited by automakers and politicians has some in the market questioning whether it’s best to wait. However, until the electric car becomes more commonplace and likely to spike in ownership within the next year, those in the nickel industry may be better off waiting for action.
“Will we see a real breakout in [the] next 12 months? That’s hard to see, but beyond that, structurally this looks to be going up,” said Rahim.