A quick review of Tsingshan’s announcement, the nickel price crash and what’s happening in Indonesia right now.
Already at the end of February 2021, according to analysts, there were typical consolidations in commodity prices at the end of the month. By March 2, the nickel price had apparently regained its footing and the trend was pointing upward. At that time, industry news headlines and analysts were also still confident that nickel would continue to rise in price.
Update April 13, 2021: In our Stainless Espresso article “US finished steel prices high until fall, and the nickel supply propaganda” we go into some recent content on this topic.
Nornickel possibly the first trigger for nickel price plunge – really?
Then the first bang. The nickel crashes on March 3 for reasons that are not apparent at first. On the LME, it loses almost about 7% in value. Also, at the Shanghai Future Exchange the nickel goes clearly down. At this time, the Russian nickel producer Nornickel is suspected by some to have triggered this fall. The latter had announced plans for March 9 (Source) on how to proceed with its two mines damaged by water ingress (Source). Because this should not have triggered a price slide. Because here it looks at present rather after a further shortage.
Tsinghsan announces alleged end of shortage for battery nickel
Then, on March 4, the next blow for nickel. Industrial giant Tsingshan announces on WeChat that it will supply 100,000 MT of nickel matte to two Chinese battery suppliers. As a result, the nickel price falls again by 8.5% on the London Metal Exchange. Asian results are even more dramatic, according to SHFE and media reports (Source).
Indonesia unveils own plans for the future of nickel processing in the country
Also, on March 4, and unfortunately barely mentioned anywhere, Indonesia unveils its plans to create a complete domestic battery production line. The state holding company for this is to be established in June 2021. These new factories are expected to produce up to 150,000 MT of nickel ore, of which up to 70% will be used for the domestic battery industry (Source | Source).
The country has drafted an “end-to-end development” plan that would see four state firms supplying nickel ore, processing nickel sulfate and cobalt sulfate, and then producing cathodes and batteries, Agus Tjahajana, who heads the task force on electric-vehicle development, said in a Thursday seminar.
Nickel pig iron in the focus of the market
The exciting thing about the drop in the price of nickel is the raw material that is primarily at issue. Nickel pig iron (NPI) has so far been used primarily in Asian stainless steel production. For the stainless steel producer Tsingshan in Indonesia and, for example, for the Chinese stainless steel plants, it is a real cost advantage to use the low-priced NPI in the production of stainless steel. However, nickel pig iron has little influence on the actual nickel price on the SHFE or the LME.
Indonesia is the world’s largest producer of nickel (primary nickel pig iron and ferronickel) with an annual output of about 800,000 MT (Source). Nickel pig iron has a nickel content of less than 5%. Indonesian NPI is said to have a nickel content of up to 2%, depending on the source.
Nickel pig iron to become nickel matte
According to Tsingshan, a new process is to be used to produce the higher-quality nickel matte from the cheap NPI. Only then will NPI become interesting for the production of batteries.
Until now, the battery-grade form of nickel has been mined mainly in Canada and Australia, and the supply has been considered scarce rather than sufficient for the transformation in the electric driving market. Also, shortly before Tsingshan surprised the market with their announcement, UBS had still referred in a report to a possible shortage of nickel, which could reach 2.2 million tons by 2030 (Source).
Nickel matte has a high nickel content
We are not metallurgists or scientists here who are particularly well versed in the individual processes required to enrich nickel pig iron to such an extent that it becomes nickel matte.
But let’s just look at the pure numbers
If we look at the nickel matte needed for battery-grade nickel sulphate, it requires a nickel content of about 77% (Source).
Nickel pig iron (as written above) has a nickel content of less than 5%, but is probably closer to 2% (Source). The rest is mainly iron ore.
If you now want to produce 1,000 kg of nickel matte with a nickel content of 77%, you need 38,500 kg of NPI with a nickel content of 2%. For 100,000 MT of nickel matte, therefore, 3.85 million tons of nickel pig iron are required. With an annual production of 800,000 MT for all nickel products in Indonesia (including NPI). Besides that, the 150,000 MT of nickel ore that Indonesia wants to raise for its announced multi-billion battery project disappears completely.
These amounts of NPI that would have to be called up here to cover the demand for 100,000 MT of nickel matte by Tsingshan rather indicate to us a further shortage in raw materials for stainless steel. This is because low-cost raw materials, many of which have been used in Asian stainless steel production up to now, are being diverted here for higher-quality products.
And where did these 3.85 million tons of nickel pig iron come from in the end?
Perhaps we haven’t understood something here either. As we said, we are not metallurgists or scientists. We are just merchants with a little understanding of mathematics. We welcome comments and other insights at firstname.lastname@example.org.
New NPI technology already under green scrutiny
Tsingshan’s announcement has hardly been published when the first voices are already being raised that see an ecological disaster behind this move. And also, that the joy among battery metal users, such as Tesla boss Elon Musk, about the current price drop is likely to be of rather short duration.
A few days ago, Musk said “Nickel is our biggest concern for scaling lithium-ion cell production” in a post on Twitter. And he announced his intention to switch some of the Tesla batteries from nickel to iron.
Because contrary to the “conventional” and previous method of producing nickel matte, the technical breakthrough of Tsingshan to produce battery-grade nickel from low-grade saprolite ore is rather to be seen as “far from green”. At least this is a statement from Morgan Stanley on the subject (Source). The carbon emissions are said to be 10 times as high as in the conventional production of nickel matte.
Especially in the big sales markets Europe and the United States, where many consumers consciously decide for a green technology, the Tsingshan method could meet great resistance. Analysts are already questioning whether the batteries have any chance at all outside China.
Tsingshan announces 2 GW green energy project for Indonesia
Tsingshan may have already listened to these concerns as well. They have already gone ahead and announced a 2 GW clean power project for battery production in Indonesia (Source). And they want to add another 5 GW hydropower plant – when and how is still completely open.
Outlook for the nickel market in the coming months
There is no question that the announcement of the Chinese Tsingshan Holding Group to produce 100,000 MT nickel matte in Indonesia has completely shaken up the nickel market. Prices have been shown to have fallen by as much as 16% and still have not fully recovered.
Indonesia is actively wooing investors to strengthen domestic value chain
In any case, battery nickel production in Asia is picking up steam. This is also shown by the Indonesian announcement to start a billion-dollar nickel battery project. And here also very actively advertises with attractive benefits to attract foreign investors to Indonesia.
EU sues against Indonesian nickel export ban
Not mentioned in this review is also the European Union with its complaint at the WTO against the Indonesian export ban on nickel (Source). Where kindly informed sources told us that the EU hardly imported nickel products from Indonesia before the export ban. This begs the question: where did this sudden interest in nickel from Indonesia come from?
What impact will Tsingshan’s announcement now have on nickel in the long term?
It remains to be seen whether the new technology will prove green enough for Western markets. At the moment, it doesn’t look like it will.
There is also the question of where the “new” raw material for the batteries, nickel pig iron, will come from in this quantity. And how it will ultimately be processed – because here, too, there have been voices in the media that this new process has not yet been fully mastered and is not yet ready for series production.
In any case, with this announcement, battery makers and stainless steel producers are entering a competitive situation. And if there is a shortage of cheap raw materials, they will have to be procured elsewhere. It is certainly convenient for some that nickel prices have fallen so dramatically worldwide.
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