Why rising nickel prices due to the Russian-Ukrainian war cast a shadow over the shift from fossil fuels to electric vehicles

New Delhi: Between Western sanctions, a slew of Russian export bans and wildly fluctuating prices due to all the uncertainty, the Ukraine-Russia conflict has wreaked havoc on the global market for nickel – a key metal for industry, military, construction, and transporting goods.

Nickel also happens to be a key feedstock for rechargeable batteries, which are used in electric vehicles (EVs), raising concerns about the hoped-for shift away from fossil fuels. Soaring input prices, it is feared, could hamper ambitious plans to manufacture electric vehicles.

On March 31, the White House released a “fact sheet” indicating that US President Joe Biden would issue a directive authorizing the use of the Defense Production Act to “support the production and processing of minerals and materials used for large capacity batteries”. – such as lithium, nickel, cobalt, graphite and manganese” to strengthen the US clean energy economy without relying on China and other countries.

Amid such proclamations, one would assume that high nickel prices could have spiraling effects on all products that need them.

However, things are not that simple. Furthermore, there is some hope that countries like Indonesia can – at least in the long term – help fill some of the gaps left by Russia.

Read also: As nickel prices soar due to war, here’s what Indian steelmakers are doing to cushion the impact

Price spikes, disproportionate effects on certain industries

Russia accounts for about 11% of the world’s nickel ore supply and 20% of the world’s premium or grade 1 nickel.

On March 8, the country, in response to sanctions against it, announced an export ban on more than 200 products. Although this list does not include energy and metals, including nickel, the announcement was enough to send prices into a wild spin.

Shortly after Russian President Vladimir Putin announced the ban, nickel prices on the London Metal Exchange (LME) more than doubled to around $100,000 per ton, following which the exchange had to stop the metal trade. Since then, prices have calmed down, but they are still far from pre-war levels.

On April 1, 2022, the price was $33,223 per ton, about 36% higher than on February 25 ($24,361 per ton).

However, this volatility will affect some industries more than others.

The LME only trades Class 1 nickel, which is 99.8% pure. According to a report by multinational financial services company ING, this globally traded nickel represents “less than a quarter” of the total finished nickel supplied to the market. This means that the increase in nickel prices will affect raw materials which need very high quality products.

Class 1 nickel, which is mined in various forms – powders, pellets, briquettes and cathodes – is essential for producing certain types of alloys and electric vehicle batteries, but it is not the main driver of the nickel market. .

According to a 2020 report from global consultancy McKinsey’s, however, more than two-thirds (about 73%) of the nickel market is driven by stainless steel, while batteries account for only 5-8%.

However, stainless steel does not depend solely on Class 1 nickel. A large majority of stainless steel products can be satisfied with Class 2 nickel, which comes in the form of nickel pig iron (NPI) and ferronickel.

In this area, Russia does not have such a great advantage.

Come in, Indonesia

Indonesia has around a third of the world’s nickel ores and is the largest producer of this metal. In 2020, it produced 0.76 million tonnes of nickel, around a third of global production, followed by the Philippines (0.32 million tonnes) and Russia (0.28 million tonnes).

But the vast majority of Indonesia’s production includes lower-grade Grade 2 Nickel (NPI), which it exports to China for stainless steel manufacturing.

In terms of Class 1 nickel, noted the McKinsey report cited above, Indonesia produced only 6.8% against 21.1% for Russia (in 2019).

Part of the reason EV makers have been so dependent on Russia is that after 2012, when China started using NPI for stainless steel, steel prices dropped dramatically. This has prompted producers like Indonesia to produce more and more Class 2 nickel.

Back then, the demand for electric vehicles was not as high as it is today. According to projections by the intergovernmental organization International Energy Agency (IEA), the “global stock of electric vehicles in all modes of transport (excluding two/three wheels) will increase by more than 11 million in 2020. to almost 145 million vehicles by 2030” – this represents an average annual growth rate of almost 30%, with electric vehicles accounting for around 7% of road vehicles by the start of the next decade.

In this scenario, Indonesia sensed an opportunity to channel some of its large nickel ores into the electric vehicle industry.

According to Isabella Huber, visiting fellow of the energy and climate change program at the Center for International and Strategic Studies, Indonesia has a strategy to meet this demand.

While Indonesia is richer in a laterite called limonite – a good source for Class 2 nickel production – and does not have such abundant reserves of sulfur ores that are ideal for producing Class 1 nickel, it designs workarounds to this problem.

In May last year, the country commissioned its first nickel processing plant for batteries – a joint venture between China’s Ningbo Lygend and Indonesia’s Harita Group. This project used a process called High Pressure Acid Leaching or HPAL to convert laterites into Mixed Hydroxide Precipitate (MHP), which can be further refined to produce Class 1 Nickel. In February this year, the Sino Joint Venture -mentioned Indonesian company has manufactured its first batch of MHP.

Indonesia currently has around seven other such projects in the works, but experts warn against being overly optimistic at this stage.

Speaking to ThePrint, Huber insisted that Russia’s Norilsk Nickel currently produces 17% of the world’s Class 1 nickel. could not replace Russian supply. The growing electric vehicle industry needs Indonesian nickel as a complement, not a replacement,” she said.

(Editing by Asavari Singh)

Read also: India’s Great Wheat Opportunity: How Delhi Can Make Up for Russia and Ukraine’s Export Shortfall

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