Surging nickel prices tripping electric drive

Carmakers are struggling to expand their line-up of electric vehicles due to the high price of nickel. PHOTO: EPA-EFE

WASHINGTON/LONDON (BLOOMBERG, REUTERS) - A global push among carmakers to expand their line-up of electric vehicles (EVs) just got a lot more expensive, thanks to surging prices of nickel and lithium - key raw materials in electric vehicle batteries.

Nickel is caught up in war-induced supply worries and a short squeeze that has sent prices to unprecedented highs. The London Metal Exchange (LME) was forced to halt nickel trading and cancel trade after prices doubled earlier this month to more than US$100,000 (S$136,000) a tonne.

Nickel prices have eased somewhat since trading resumed, but at about US$32,000 a tonne, the commodity is still trading at a 10-year high.

While analysts say prices will subside from current stratospheric levels, the bad news is that they could remain elevated and add hundreds of dollars in costs a car.

The EV industry was already scrambling to secure battery metals for an expected jump in demand. Tesla boss Elon Musk in recent years has pointed to the chances of a structural deficit for nickel among his biggest concerns.

The price surge means manufacturers will have to redouble efforts to find substitutes or alternate sources, one of which could come from Tsingshan Holding Group, the Chinese mining giant at the centre of the short squeeze that last year introduced a way to produce battery nickel from low-grade ore.

"Nickel is the single biggest component in terms of cost," said Mr Sam Abuelsamid, principal research analyst at Guidehouse Insights. "So, any change will have a significant impact."

"Nickel can be a volatile beast," said Mr William Adams, head of base metal and battery research at Fastmarkets in London.

Tesla boss Elon Musk has pointed to the chances of a structural deficit for nickel among his biggest concerns. PHOTO: EPA-EFE

Here is how it works. A 100kWh battery needs about 145 pounds, or about 66kg, of nickel, according to BloombergNEF (BNEF). Last year's average price was about US$18,500 a tonne, Mr Adams said.

That means about US$1,200 of nickel in every battery. At US$29,000 a tonne, that same battery needed more than US$1,900 in nickel.

It is not a huge jump, but carmakers do not like to see the cost of one material go up by US$700 a vehicle. They lock in long-term supply contracts and can avoid price spikes on the spot market for a while, but if higher pricing persists, they will be paying more.

New sources are coming from Indonesia, and Russian nickel will find its way to China and other nations that are not using sanctions or boycotts. But Mr Adams expects the metal to trade in the range of US$20,000 to US$25,000 a tonne this year and could average about US$22,000.

He has not updated his forecast yet, though. That will put a squeeze on the margins of an already profit-challenged part of the market and could entice car companies to hasten their move towards other metals.

Last year, Tsingshan, the world's largest nickel producer, started shipping its first cargo of so-called nickel matte. It is a new way to make nickel for batteries that analysts, including BNEF's Allan Ray Restauro and Kwasi Ampofo, say may open up a big supply route from low-grade ore mines for EVs.

While capacity is limited at the moment, Tsingshan had shipped its first batch of nickel matte for EV batteries from its Indonesia plant, with three lines producing up to 3,000 tonnes a month, reported researcher Mysteel in January.

The new process, if followed by other nickel-pig-iron producers, will likely add more to supply for battery-grade nickel, said Mr Restauro.

He expects the conversion from nickel pig iron to nickel matte to accelerate, although this requires nickel prices to remain elevated for medium to longer term as this would require additional capital to invest in change over existing furnaces.

Meanwhile, China - the world's largest EV market - is telling its electric car battery supply chain that it wants lithium prices to return to sustainable levels.

China is looking for ways to reduce the cost of lithium. PHOTO: AFP

The government called in a range of market participants last week - from lithium producers to the main carmakers' association - to discuss "a rational return" for lithium prices, according to a statement from the Ministry of Industry and Information Technology late last Friday.

Lithium has soared nearly 500 per cent in the past year, adding to cost pressures for EV producers.

Beijing's call underscores how China is getting nervous about lithium's prolonged surge. It is also in line with a broader push to manage soaring commodity prices. Earlier, some manufacturers were also summoned for a meeting after prices of rare earths jumped.

Lithium has powered through records in China as an acceleration in demand from EV manufacturers outstrips supply. The burgeoning EV industry is grappling with growing risks around cost inflation, with some carmakers starting to feel the pain and raising their own price tags.

Lithium carbonate prices in China are now at almost 500,000 yuan (S$107,000) a tonne - an all-time high and an 80 per cent gain so far in 2022.

If prices of these key commodities continue to stay lofty, forecasts of EVs reaching price parity with combustion-engined equivalents by 2025 may be pushed back by a few years.

Join ST's Telegram channel and get the latest breaking news delivered to you.