LONDON (Reuters) - Has nickel lost its electric buzz?
Bull spirits had been galvanized by the potential boost to demand from the electric vehicle revolution. Nickel is expected to be one of the winners in the battle for more efficient batteries.
The price of nickel on the London Metal Exchange surged by 63 percent between October 2017 and April 2018, hitting a three-year high of $16,690 per ton. It is now trading at $11,750.
Trade war anxiety has played its part in the price fall. But nickel has its own worries.
Assumptions as to how both nickel’s price and supply chain would need to adapt to the new electric demand driver have just been upended.
Step forward Tsingshan Holding Group, the Chinese steel giant that is already disrupting the stainless steel supply chain and is now preparing to do the same to nickel.
And it isn’t good news for nickel bulls.
Graphic on the LME nickel price: tmsnrt.rs/2CSjxOa
Tsingshan is part of a consortium of Chinese companies, which last month announced their intention to produce battery-grade nickel and cobalt in Indonesia.
The group includes lithium battery heavyweights Contemporary Amperex Technology and GEM Co. Ltd..
Tsingshan will supply the nickel and operate the first-stage processing to nickel hydroxide intermediates that can then be converted into nickel sulphate, the nickel form of choice for lithium-ion battery makers.
Tsingshan is already a major miner and processor of nickel ore, converting it to nickel pig iron (NPI) to feed its new stainless steel mill in the Morowali industrial park on the island of Sulawesi.
It is going to use a different processing route for the proposed 50,000-tonne per year battery-materials plant.
High-pressure-acid-leaching (HPAL) technology has a troubled history of operational problems and slow ramp-ups. Brazil’s Vale is still struggling with its Goro plant after six years of operation.
Tsingshan, however, is proposing to build one faster and cheaper than anyone thought possible.
If it can do so, it will reshape the nickel market and undermine the bull argument for higher prices.
Indonesian nickel mine production jumped by 74 percent last year to 345,000 tonnes and increased by another 65 percent in the first seven months of this year, according to the International Nickel Study Group.
This wall of supply hasn’t fazed nickel bulls because the consensus was that none of it would find its way near a battery because of the high costs of converting it to nickel sulphate.
Rather, with existing producers of the right sort of nickel already maxed out, the price would have to rise to incentivize new battery-grade capacity, the argument ran.
Research house CRU estimated the price would have to rise above $18,000 a ton to trigger investment in the sort of HPAL plant Tsingshan is planning. (“CRU Insight”, Oct. 22, 2018)
Tsingshan, however, has indicated capital costs of $700 million, which CRU calculates translates into $14,000 per ton of new capacity.
Tsingshan is also saying the plant could be operational by the end of next year, which according to researchers at Wood Mackenzie is “not realistic”. (“Tsingshan’s nickel and stainless battery raw materials plan,” Oct. 25, 2018)
“Existing HPAL plants around the world took between four and seven years to build, with ramp-up generally adding a further two to five years and capex amounting to several billion dollars each,” WoodMac notes.
It is possible that the plant would be multi-stage, it concedes, suggesting that first-phase production by the end of 2019 might be possible “if the 10,000 (tonnes per year) pilot leach plant that we know exists at Morowali is somehow involved.”
It’s typical of Tsingshan that it is already operating a pilot plant on the relative quiet.
Such is the company’s reputation for innovation and disruption that no-one is dismissing its ability to close the processing loop between nickel ore and nickel sulphate in record-breaking time.
When Indonesia banned the export of unprocessed ores, including nickel, in 2014, a flock of Chinese nickel companies descended on the country to build NPI plants.
Tsingshan’s ambitions, however, extended far beyond ticking a first-stage processing box to navigate the ore ban.
It built a state-of-the-art stainless steel complex, using locally mined nickel and chrome as raw materials.
The Morowali site currently has 20 nickel ore processing facilities feeding 1.5 million tonnes of nickel pig iron into a 3-million ton per year stainless mill.
Indonesia is now the sixth-largest producer of the alloy in the world.
So efficient is the Indonesian plant that Tsingshan is in the curious position of facing an anti-dumping investigation by the Chinese authorities after mainland producers complained of a flood of cheap imports.
The company is also disrupting stainless steel pricing, offering fixed-price contracts that contain no alloy surcharge, the industry’s traditional way of pricing volatility of key inputs such as nickel.
The attack on the surcharge is likely to be fiercely resisted by other producers but with 8 million tonnes of capacity, around 15 percent of global production, and its low-cost base, Tsingshan’s “offer could be very attractive to customers,” according to analysts at Citi.
Tsingshan is proving to be an extraordinarily disruptive force in the stainless steel space, which is why its nickel plans are being taken seriously by the market.
INCREASED LONG-TERM UNCERTAINTY
Whether Tsingshan can deliver its HPAL plant on time and on budget remains to be seen, but its desire to crack the nickel ore-nickel sulphate processing challenge is clear.
The company is actively experimenting with another potential route in Indonesia.
It has teamed up with Chinese cobalt producer Huayou to build nickel capacity at Weda bay that would convert ore to NPI to matte, which could then be converted to sulphate, according to CRU.
“The economics of this route are potentially less favorable than the HPAL process,” CRU says but it’s evidently not going to stop Tsingshan trying.
Moreover, others will surely follow in its footsteps.
Is nickel production going to see another technical break-through?
Remember that NPI itself was a Chinese-made revolution in how nickel is processed and the market has been living with the negative price consequences ever since.
If Tsingshan can engineer a low-cost way of turning ore to battery-grade sulphate, it would have major implications for nickel price expectations.
It would also reconnect a nickel market in danger of bifurcating into two discreet parts using two different processing routes to serve two very different end-uses in the form of stainless steel and battery materials.
One thing’s for sure. To quote CRU, Tsingshan has just “increased the uncertainty surrounding the long-term view on nickel prices”.
(The opinions expressed here are those of the author, a columnist for Reuters.)
Editing by Susan Fenton