Russia’s invasion of Ukraine has rattled the global nickel market just as the metal is gaining prominence as an ingredient in electric car batteries, raising fears that high prices could slow the transition to fossil fuels.
The price of nickel doubled in one day last week, prompting the London Metal Exchange to freeze trading and cripple the global nickel market. After two years of pandemic-caused supply chain chaos, the episode provided more evidence of how geopolitical tensions are destroying business relationships companies once took for granted, forcing them to rethink where they get the parts and metals they use to make cars and more. others products.
Automakers and other companies that need nickel, along with other battery feedstocks like lithium or cobalt, have started looking for ways to protect themselves against future shocks.
Volkswagen, for example, has begun to consider buying nickel directly from mining companies, said Markus Duesmann, general manager of the automaker’s Audi division, on Thursday. “Commodities are going to be a problem for years to come,” he said.
The prospect of prolonged geopolitical tensions is likely to accelerate attempts by the United States and Europe to develop domestic supplies of raw materials that often come from Russia. There are nickel deposits, for example, in Canada, Greenland and even Minnesota.
“Nickel, cobalt, platinum, palladium, even copper – we have already realized that we need these metals for the green transition, to mitigate climate change,” said Bo Stensgaard, managing director of Bluejay Mining, which works at the mining nickel from a site in West Greenland in a venture with KoBold Metals, whose backers include Jeff Bezos and Bill Gates. “When you see the geopolitical developments with Ukraine and Russia, it’s even more evident that there are supply risks with these metals.”
But establishing new mining operations will likely take years, if not decades, because of the time needed to acquire permits and finance. Meanwhile, companies using nickel – a group that also includes steelmakers – will face higher prices, which will eventually be felt by consumers.
An average electric car battery contains about 80 pounds of nickel. The price spike in March would more than double the cost of that nickel to $1,750 a car, according to estimates by trading firm Cantor Fitzgerald.
Russia accounts for a relatively small proportion of global nickel production, and most of it is used to make stainless steel, not car batteries. But Russia plays an outsized role in nickel markets. Norilsk Nickel, also known as Nornickel, is the world’s largest nickel producer, with extensive operations in Siberia. Its owner, Vladimir Potanin, is one of the richest people in Russia. Norilsk is one of a limited number of companies licensed 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 measure that would harm their economies as well as to that of Russia. The prospect that Russian nickel could be cut off from world markets 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 go back down to a level close to where we left off,” around $25,000 a tonne from a high of $100,000 a tonne, said Adrian Gardner, senior nickel analyst at Wood Mackenzie. , a research firm. solidify.
Nickel was on a tear even before the Russian invasion as hedge funds and other investors bet on growing demand for electric vehicles. The price topped $20,000 a ton this year after hovering between $10,000 and $15,000 a ton for most of the past five years. At the same time, less nickel was being 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 across the trading desks of brokerage firms and hedge funds in London that one company, which turned out to be the Tsingshan Holding Group of China, had made a huge bet that the price of nickel would plummet. When the price rose, Tsingshan owed billions of dollars, a situation known on Wall Street as a short squeeze.
The price soared to just over $100,000 a tonne, threatening the existence of many other companies that had bet badly and prompting the London Metal Exchange to halt trading.
The Russian-Ukrainian War and the World Economy
The exchange attempted to restart nickel trading twice this week with new price limits, but sudden drops halted trade again. “The market is broken,” said Keith Wildie, head of trading at London-based metals firm Romco.
There is no indication that nickel prices will lead to plant closures in the same way that shortages of Ukrainian-made components have crippled the assembly lines of Volkswagen, BMW and other automakers. It will take a few weeks for the price increases to trickle down to the system.
For now, automakers and other big buyers of nickel like steel mills may be able to find other suppliers, use more recycled materials, or switch to battery designs that require less nickel. .
“There’s enough nickel,” Mercedes-Benz chief executive 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 side effects from this dispute.”
The conflict in Ukraine underscored the urgency of moving away from fossil fuels, Audi’s Duesmann said. Russian oil plays a much bigger role in the global economy than Russian nickel. “It would be too myopic to say, ‘Electromobility doesn’t work,'” he said.
Beyond the immediate disruption to supplies, automakers are worried 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 has held up remarkably well during the pandemic.
“Perhaps we should be talking 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 blow to trade”.
Ana Swanson contributed report.