Nickel Price Surging As Hype Escalates During LME Week

It’s LME Week and there’s cause for celebration in metal markets. European mining stocks rose to a 4-year high as the nickel price surged more than 5% intraday to a two-year high and rose by the daily limit in Shanghai trading today. Metals used in electronic vehicles, like lithium, cobalt, copper and nickel, are hot right now and a focal point of discussion at the LME gatherings. As Metal Bulletin noted, the 2017 event has seen record attendance.

The annual LME Dinner week kicked off in a positive note, with record numbers gathering for the exchange’s keynote metals seminar on Monday October 30. “We have over 900 people over the day here…which is a record attendance,” London Metal Exchange chief executive officer (CEO) Matthew Chamberlain said.

Despite relatively high inventories, big miners and metal traders are becoming increasingly bullish on nickel’s prospects. According to Bloomberg...

Glencore Plc and Trafigura Group Pte are often at loggerheads, but one thing they agree on: the nickel market will be transformed by the rise of electric cars. Nickel sulphate, a key ingredient in lithium-ion batteries, will see demand increase 50 percent to 3 million metric tons by 2030, Saad Rahim, chief economist at Trafigura, said in an interview. While other battery metals like cobalt and lithium have more than doubled since the start of last year, nickel prices have been subdued because of large inventories.

"When you look structurally, we should start to get bullish now,” Rahim said.

 

“Are you going to be able to meet that demand when the time comes, given underinvestment in the supply side?”

Glencore, which was devastated by the downturn in nickel, is also optimistic, as are some of the analysts, as Bloomberg notes...

(Glencore) told analysts recently that nickel production would need to increase 1.2 million tons by 2030, equal to more than half of current global output, to keep up with demand from the battery industry. Prices are currently more than double what it costs Glencore to mine the metal. It’s a surprising mood change for a market with a disastrous reputation. Nickel was long a thorn for Glencore, which was saddled with unprofitable operations following its takeover of Xstrata. It sold an Australian nickel mine, which Xstrata bought in 2007 for $2.4 billion, for just $19 million in 2015.

 

“The nickel industry’s been a bit of a dog since about 2007,” Oliver Ramsbottom, a partner at McKinsey & Co. in Tokyo, said by phone.

 

The battery industry could revive the fortunes of miners more than a decade after nickel collapsed from a peak of $51,600 a ton in 2007

Despite the hype, Bloomberg cautions that there are still naysayers highlighting elevated inventories and the potential for supply to ramp-up faster than currently expected.

Still, some analysts are skeptical that the bullish scenarios will play out. Electric cars are still a niche industry and nickel oversupply remains a threat, with current stockpiles four times bigger than since the start of 2012.

 

Indonesia has authorized its largest producer to export more nickel ore. The Philippines has also discussed ending a ban on open-pit mining, raising concerns that supply will spike.

 

“For years, the market has completely dismissed the idea that something positive could happen in nickel,” Ingrid Sternby, senior research analyst at Blenheim Capital Management LLP, said in an interview in London. “With the recent announcements about Indonesia and the Philippines, it’s easy to see why the market is still scary enough for people not to want to be involved…

 

“You can see the tightness ahead in the nickel market, but my concern is that we’re going to see a lot of value destroyed along the way,” said Colin Hamilton, managing director for commodities research at BMO Capital Markets Ltd.

 

“If the miners really believe in the EV growth story, the thing to do would be to keep the nickel in the ground until the deficit arrives.”

When assessing the prospects for nickel, it is really two separate markets, nickel alloyed with iron and nickel sulphate used in batteries. Bloomberg expects the latter to progressively trade at a premium to the former.

About half of global nickel production is in the form of ferronickel or nickel pig iron, which is nickel alloyed with iron, making it suitable for stainless steel. Battery makers, instead, use nickel sulphate, produced by dissolving pure nickel metal in sulphuric acid. One hope is that the pricing of nickel pig iron and the high-grade nickel sulphate will diverge in the coming years, improving the fortunes of miners that can produce battery-quality material.

 

The global nickel market is heading for a deficit once above-ground stockpiles of battery-grade metal are consumed, according to Wood Mackenzie. The question for miners is how quickly the premium for top-quality nickel will emerge.

The nickel alloy versus nickel sulphate certainly adds complexity to analysing nickel. However, while the fundamentals for the latter seem very positive, it makes us slightly nervous when record numbers of participants gather at industry jamborees.

Still, politicians and automakers are increasingly counting on a future of electric cars, attracting traders such as Trafigura.

“Will we see a real breakout in next 12 months? That’s hard to see, but beyond that, structurally this looks to be going up,” Rahim said.

 

As Lithium Booms, Some Analysts Sound Note Of Caution

In “Mad Scramble for Lithium Mines From Congo to Cornwall”, Bloomberg puts some colour on current conditions in the red hot sub-sector.

For evidence of just how hot battery ingredient lithium is right now, look no further than Australia’s AVZ Minerals Ltd. A penny stock until a few months ago, the mining hopeful has surged about 1,300 percent this year. The proposition: recasting a remote, century-old tin mine in the Democratic Republic of Congo as a supplier of lithium needed to power electric cars. While its rise has been dramatic, AVZ isn’t alone in the rush to position for a rechargeable-battery boom.

In the U.K., a company (Cornish Lithium) founded by former investment banker Jeremy Wrathall Cornish Lithium is planning to tap thermal springs in Cornwall, a region more famous for its beach coves.

Cornish beach cove…but have you tried driving to one from London (takes hours).

Other companies are hunting for lithium deposits from Germany to Mali, and even Afghanistan plans to tender exploration permits.

As we explained last month, there is so much interest in lithium – mainly due to its application in electric vehicles and energy storage - that the Lithium and Battery tech ETF has seen record volumes and the LME is reportedly considering the introduction of a lithium (carbonate) contract.

While everybody has been fretting about the supply side, some analysts are starting to question whether the supply side will expand too fast in the coming years, as Bloomberg explains.

"You’ve got a scramble for deposits, a demand side that looks very impressive, the question is always around the supply," said Paul Gait, an analyst at Sanford C. Bernstein Ltd. in London. In the rush to meet demand there is a risk too many mines will be developed and too much metal supplied, Gait said.

 

"When the tide goes out, those that do not have good geology will always be found wanting."

Bloomberg notes that uncertainty about global production growth has encouraged some users to lock-in future supplies of the metal.

However, while production might struggle at first to catch up with demand growth, lithium isn’t really rare compared with other battery metals like cobalt and graphite, according to Bloomberg Intelligence analyst Eily Ong. And mining history is full of cautionary examples of booms that ended in bust when the rush to boost supply overshot demand growth. Iron ore is a recent example, after a boom in Chinese steel production led to a push to build new mines. That turned out poorly for many of the iron ore upstarts that either struggled to build projects or brought mines into production just in time for prices to drop. Global lithium production increased by about 12 percent last year, with batteries accounting for about 39 percent of consumption, according to the U.S. Geological Survey. While Australia was the largest producer in 2016, its identified resources are dwarfed by Argentina and Bolivia, each with about 9 million tons and Chile, with more than 7.5 million tons.

 “This is not a metal that’s going to be exempt from the normal laws of commodity economics,” said Bernstein’s Gait. “Sooner or later we will over supply.”

Bloomberg cites a report from Liberum Capital, the London-based brokerage…

There are about a dozen projects being built or expanded around the world, according to Liberum Capital Ltd. Those, plus a handful of others seen as likely to proceed, could help nearly triple global lithium supply by 2025, but still fall short of expected demand. Beyond that, there’s a further eight projects that haven’t secured financing yet, but could possibly push the market into a surplus by 2025, Liberum said in a report. Lithium carbonate prices have more than doubled in the past two years, according to data from Benchmark Mineral Intelligence.

 

“With prices where they are right now, there’s not a potential lithium mine in the world that doesn’t make an extraordinary amount of money,” said Liberum analyst Richard Knights. “There’s every incentive to bring supply on.”

…and a report from BMO Capital Markets published earlier this week.

Current shortfalls may abate by 2019-20 based on the strong supply response, BMO Capital Markets analyst Joel Jackson said in a note dated Oct. 24. However, uncertainty about assumptions including electric-vehicle penetration, battery technology and lithium supply growth makes the market balance difficult to predict, he said.

The Bloomberg article circles back to AVZ Minerals.

In Congo, AVZ must still prove that extracting the lithium is economically viable. It will also need to rehabilitate an old power station to reach production and build over 600 kilometers (372 miles) of roads to connect the mine with the regional capital of Lubumbashi for exports. Still the project is attracting investors, including China’s Zhejiang Huayou Cobalt Co., one of the world’s biggest refiners of cobalt. "The biggest companies in China are just queuing up," AVZ Chairman Klaus Eckhof said from Dubai.

"They all want to be part of it because they don’t have a pipeline of supply, my phone keeps ringing."

Visualizing The Massive Impact Of EVs On Commodities

What would happen if you flipped a switch, and suddenly every new car that came off assembly lines was electric?

It’s obviously a thought experiment, since right now EVs have close to just 1% market share worldwide. We’re still years away from EVs even hitting double-digit demand on a global basis, and the entire supply chain is built around the internal combustion engine, anyways.

At the same time, however, as Visual Capitalist"s Jeff Desjardins notes, the scenario is interesting to consider. One recent projection, for example, put EVs at a 16% penetration by 2030 and then 51% by 2040. This could be conservative depending on the changing regulatory environment for manufacturers – after all, big markets like China, France, and the U.K. have recently announced that they plan on banning gas-powered vehicles in the near future.

THE THOUGHT EXPERIMENT

We discovered this “100% EV world” thought experiment in a UBS report that everyone should read. As a part of their UBS Evidence Lab initiative, they tore down a Chevy Bolt to see exactly what is inside, and then had 39 of the bank’s analysts weigh in on the results.

After breaking down the metals and other materials used in the vehicle, they noticed a considerable amount of variance from what gets used in a standard gas-powered car. It wasn’t just the battery pack that made a difference – it was also the body and the permanent-magnet synchronous motor that had big implications.

As a part of their analysis, they extrapolated the data for a potential scenario where 100% of the world’s auto demand came from Chevy Bolts, instead of the current auto mix.

THE IMPLICATIONS

If global demand suddenly flipped in this fashion, here’s what would happen:

Some caveats we think are worth noting:

The Bolt is not a Tesla

The Bolt uses an NMC cathode formulation (nickel, manganese, and cobalt in a 1:1:1 ratio), versus Tesla vehicles which use NCA cathodes (nickel, cobalt, and aluminum, in an estimated 16:3:1 ratio). Further, the Bolt uses an permanent-magnet synchronous motor, which is different from Tesla’s AC induction motor – the key difference there being rare earth usage.

Big Markets, small markets:

Lithium, cobalt, and graphite have tiny markets, and they will explode in size with any notable increase in EV demand. The nickel market, which is more than $20 billion per year, will also more than double in this scenario. It’s also worth noting that the Bolt uses low amounts of nickel in comparison to Tesla cathodes, which are 80% nickel.

Meanwhile, the 100% EV scenario barely impacts the steel market, which is monstrous to begin with. The same can be said for silicon, even though the Bolt uses 6-10x more semiconductors than a regular car. The market for PGMs like platinum and palladium, however, gets decimated in this hypothetical scenario – that’s because their use as catalysts in combustion engines are a primary source of demand.

Toxic Metal: The Health Dangers of Cobalt

Cobalt is naturally occurring element that does have beneficial applications. For instance, cobalt is an essential component of vitamin B12. Cobalt has been added to pigments to produce a distinct blue color. Lithium ion batteries contain cobalt. In the medical field, cobalt-60 is used in radiotherapy and for sterilizing medical equipment. Hip replacements are also made of cobalt. Regardless of these perceived advantages, cobalt is not without its problems. Cobalt can accumulate to toxic levels in the liver, kidney, pancreas, and heart, as well as the skeleton and skeletal muscle. Cobalt has been found to produce tumors in animals and is likely a human carcinogen as well.

Cobalt Exposure

Industrial plants may leak cobalt and other toxic metals into the environment. Once cobalt particles enter the atmosphere, they settle to the ground and enter the food and water supply; most of the population is exposed to cobalt through food, water, and air. Cobalt makes its way through the environment and cannot be destroyed. People working in industrial settings have an increased risk of exposure to toxins, including cobalt. Also, it’s been reported that hip replacements containing cobalt have caused problems due to nano particles of cobalt breaking away and contaminating the body.

Occupational Exposure to Cobalt

Occupational cobalt exposure is a known problem and part of a larger problem that includes exposure to other toxic metals such as arsenic, cadmium, lead, and mercury. All of these compounds are classified as carcinogens and linked to cancer. When the body becomes exposed to these metals, a disruption of homeostasis is the result and that causes oxidative stress, DNA damage, and serious degenerative diseases. Experiencing the effects of toxic metal toxicity does not require “nuclear meltdown” levels of exposure either. Heart and lung problems have been shown to follow exposure to levels of cobalt near or even under current occupational exposure limits. ^[1]

Sweden’s Department of Occupational and Environmental Medicine at Uppsala University Hospital warns that low levels of cobalt exposure negatively impact lung function. Other studies have linked cobalt to occupational asthma. ^[2] [3]

Occupational exposure to cobalt powder has been linked to vision and hearing problems. The toxic effect of cobalt on vision was also noted in research conducted by the Robert Stempel School of Public Health at Florida International University in Miami. ^[4] Unfortunately, now, patients with hip implants containing cobalt are suffering from similar effects including tinnitus, deafness, vertigo, and blindness. ^[5]

Cobalt and Hip Replacements

Advanced hip disease is a problem that generally requires a hip replacement and most hip replacements are made of cobalt and chromium. Well over one million metal-on-metal hip replacement procedures have been completed, many successfully. However, the use of cobalt-chromium alloys in orthopedic replacements has created a new source of internal cobalt exposure. Wear and corrosion produce soluble metal debris in the form nano particles that disseminate through the body via the lymph nodes and cardiovascular system, leading to toxicity. ^[6] [7] This can affect immune system function and damage DNA and chromosomes. ^[8]Furthermore, nano particles have properties that their bulk states do not. At this time, much is unknown regarding toxic and carcinogenic effects of nano particles although studies have linked them to oxidative stress and redness. ^[9]

Testing for Cobalt Exposure?

Within days of exposure, a doctor can administer blood or urine tests to detect cobalt levels. Test results will indicate the amount of cobalt in your body and, depending on what prompted your concern, you may be able to pinpoint causes of exposure. However, tests cannot determine what health-related effects you will experience. In my opinion, the health consequences from exposure to any toxic metal, including cobalt, isn’t worth the risk. I would encourage you to get your cobalt levels tested and perform a chemical and toxic metal cleanse if you’re concerned about the effects of exposure to cobalt.

References (9)

1. Koedrith P, Seo YR. Advances in carcinogenic metal toxicity and potential molecular markers. Int J Mol Sci. 2011;12(12):9576-95. doi: 10.3390/ijms12129576. Epub 2011 Dec 20.


2. Rehfisch P, Anderson M, Berg P, Lampa E, Nordling Y, Svartengren M, Westberg H, Gunnarsson LG. Lung function and respiratory symptoms in hard metal workers exposed to cobalt. J Occup Environ Med. 2012 Apr;54(4):409-13. doi: 10.1097/JOM.0b013e31824d2d7e.


3. Walters GI, Moore VC, Robertson AS, Burge CB, Vellore AD, Burge PS. An outbreak of occupational asthma due to chromium and cobalt. Occup Med (Lond). 2012 Oct;62(7):533-40. doi: 10.1093/occmed/kqs111.


4. Mendy A, Gasana J, Vieira ER. Urinary heavy metals and associated medical conditions in the US adult population. Int J Environ Health Res. 2012;22(2):105-18. doi: 10.1080/09603123.2011.605877. Epub 2011 Aug 19.


5. Apostoli P, Catalani S, Zaghini A, Mariotti A, Poliani PL, Vielmi V, Semeraro F, Duse S, Porzionato A, Macchi V, Padovani A, Rizzetti MC, De Caro R. High doses of cobalt induce optic and auditory neuropathy. Exp Toxicol Pathol. 2012 Oct 12. doi:pii: S0940-2993(12)00087-5. 10.1016/j.etp.2012.09.006.


6. Campbell JR, Estey MP. Metal release from hip prostheses: cobalt and chromium toxicity and the role of the clinical laboratory. Clin Chem Lab Med. 2013 Jan;51(1):213-20. doi: 10.1515/cclm-2012-0492.


7. Simonsen LO, Harbak H, Bennekou P. Cobalt metabolism and toxicology–a brief update. Sci Total Environ. 2012 Aug 15;432:210-5. doi: 10.1016/j.scitotenv.2012.06.009. Epub 2012 Jun 23. Review.


8. Gill HS, Grammatopoulos G, Adshead S, Tsialogiannis E, Tsiridis E. Molecular and immune toxicity of CoCr nanoparticles in MoM hip arthroplasty. Trends Mol Med. 2012 Mar;18(3):145-55. doi: 10.1016/j.molmed.2011.12.002. Epub 2012 Jan 12. Review.


9. Magaye R, Zhao J, Bowman L, Ding M. Genotoxicity and carcinogenicity of cobalt-, nickel- and copper-based nanoparticles. Exp Ther Med. 2012 Oct;4(4):551-561. Epub 2012 Aug 7.

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