The Russian invasion of Ukraine has shaken the global nickel market just as the metal is gaining importance as an ingredient in electric car batteries, raising fears that high prices could slow the transition from fossil fuels.
The price of nickel doubled in one day last week, prompting the London Metal Exchange to freeze trading and effectively bring the global nickel market to a halt. After two years of supply chain chaos caused by the pandemic, the episode provided more evidence of how geopolitical tensions are destroying trade relationships that companies once took for granted, forcing them to rethink where they source the parts and metals they use to make cars and cars. many other products.
Automakers and other companies requiring nickel, as well as other battery commodities such as lithium or cobalt, have been looking for ways to protect themselves from future shocks.
For example, Volkswagen has begun investigating buying nickel directly from mining companies, Markus Duesmann, chief executive of the carmaker’s Audi division, said in an interview on Thursday. “Raw materials will continue to be a problem for years to come,” he said.
The prospect of protracted geopolitical tensions is likely to accelerate efforts by the United States and Europe to develop domestic supplies of goods, which often come from Russia. For example, there are nickel deposits in Canada, Greenland, and even Minnesota.
“Nickel, cobalt, platinum, palladium, even copper – we already realized we need those metals for the green transition, for mitigating climate change,” said Bo Stensgaard, chief executive of Bluejay Mining, which is in the process of winning of nickel from a site in West Greenland in a venture with KoBold Metals, whose backers are Jeff Bezos and Bill Gates. “When you see the geopolitical developments with Ukraine and Russia, it’s even clearer that there are supply risks with these metals.”
But setting up new mining operations is likely to take years, even decades, because of the time it takes to obtain permits and financing. In the meantime, companies using nickel – a group that also includes steelmakers – will face higher prices, which will ultimately be felt by consumers.
An average electric car battery contains about 80 pounds of nickel. The March price hike would more than double the cost of that nickel to $1,750 per car, according to estimates by trading firm Cantor Fitzgerald.
Russia is responsible for a relatively small portion of the world’s nickel production, and most of it is used to make stainless steel, not car batteries. But Russia is playing an outsized role in the nickel markets. Norilsk Nickel, also known as Nornickel, is the world’s largest nickel producer, with extensive operations in Siberia. The owner, Vladimir Potanin, is one of the richest people in Russia. Norilsk is one of a limited number of companies authorized to sell a specialized form of nickel on the London Metal Exchange, which handles all nickel trading.
Unlike other oligarchs, Mr. Potanin has not been the target of sanctions, and the United States and Europe have not attempted to block nickel exports, a move that would hurt both their economies and Russia’s. The prospect that Russian nickel could be cut off from the world market was enough to cause panic.
Analysts expect prices to fall from their recent highs, but remain much higher than they were a year ago. “The trend would be to drop to levels close to where we last left off,” said Adrian Gardner, a chief nickel analyst at Wood Mackenzie, a firm.
Nickel was in tears even before the Russian invasion as hedge funds and other investors bet on rising demand for electric vehicles. The price was $20,000 a ton this year, after hovering between $10,000 and $15,000 a ton for much of the past five years. At the same time, less nickel was produced due to the pandemic.
After Russia invaded Ukraine in late February, the price soared above $30,000 in just over a week. Then came March 8. Word spread to the trading desks of brokerage firms and hedge funds in London that a company, which turned out to be China’s Tsingshan Holding Group, had made a huge bet that the price of nickel would fall. As the price rose, Tsingshan owed billions of dollars, a situation known on Wall Street as short squeeze.
The price skyrocketed to just over $100,000 a ton, endangering the existence of many other companies that had guessed wrong and forced the London Metal Exchange to cease trading.
The war between Russia and Ukraine and the world economy
The exchange tried twice this week to resume nickel trading with new price limits, but sudden dips caused trading to be halted again. “The market is broken,” said Keith Wildie, head of commerce at London-based metals company Romco.
There are no signs that nickel prices will lead to plant closures as shortages of parts made in Ukraine have brought assembly lines to a standstill at Volkswagen, BMW and other automakers. It will take a few weeks for the price increases to ripple through the system.
For now, automakers and other major buyers of nickel, such as steel makers, can find alternative suppliers, use more recycled content, or switch to battery designs that require less nickel.
“There’s plenty of nickel,” Mercedes-Benz CEO Ola Källenius said in an interview this week. But automakers may have to pay more, he said, adding: “It is not unlikely that we will have secondary effects from this conflict.”
The conflict in Ukraine has underlined the urgency to move away from fossil fuels, said Audi’s Mr Duesmann. Russian oil plays a much larger role in the global economy than Russian nickel. “It would be too short-sighted to say, ‘Electromobility isn’t working,'” he said.
Aside from the immediate supply disruption, automakers are concerned about a pullback from the open markets that have been so good for business. Katrin Kamin, a trade expert at the Kiel Institute for the World Economy in Germany, noted that global trade had held up remarkably well during the pandemic.
“Perhaps we should talk less about globalization in crisis and more about international relations at rock bottom,” Ms Kamin said in an email.
But the conflict in Ukraine, she added, “is a major blow to trade.”
Ana Swanson reporting contributed.
