Cheap, battery grade nickel? If it sounds too good to be true, it probably is
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Fears of bargain-basement battery grade nickel flooding the market starting in 2019 are unsubstantiated, according to Wood Mackenzie analysts.
In September last year a Chinese consortium announced a new $700 million High-Pressure-Acid-Leaching (HPAL) plant in Indonesia, which would produce 50,000 tonnes a year of battery-grade nickel chemicals starting in 2019.
Two similar projects in Indonesia were announced around the same time, and collectively, helped send nickel prices to 7-month lows.
Based on previous HPAL project development, this is both faster and cheaper than anyone thought possible.
Nickel resources are usually divided between laterite or sulphide deposits – with sulphide deposits favoured because they are easier and cheaper to process.
This is why sulphide deposits were in the box seat to supply the soon-to-be burgeoning EV battery sector.
If the Chinese had figured out a rapid, low-cost way of turning cheap laterite ore into battery grade sulphate using HPAL this thematic could be turned on its head.
But Andrew Mitchell, principal nickel analyst at Wood Mackenzie says the amount of nickel coming to the market from these projects will be smaller, slower and more costly “than so far alluded to”.
“The $US700m that has been spoken about suggests 20,000 tonnes instead of 50,000 tonnes,” he told Stockhead.
“50,000 tonnes is pushing it — that’s the bottom line.”
So if these plants don’t ramp up as scheduled – where does this leave the nickel demand/ supply balance?
Mr Mitchell says the nickel market is still looking at another supply deficit for this year, and next year.
Reuters reports that official LME nickel inventories fell 44 per cent in 2018, and just recently fell through the 200,000-tonne mark for the first time since 2013.
This often means more nickel is being consumed than produced.
And if these 2019 HPAL construction milestones are not met, collective market relief could result in a nickel price recovery.
“At the moment the nickel price is very much driven by sentiment,” Mr Mitchell says.
“Everyone is looking at it closely, asking – can the Chinese really do this?
“If they do, this is not good for the market, because the feeling is that more [cheap] supply will follow.
“But if it is shown that the Chinese can’t do it much better that it has been done before, then there will be a collective sigh of relief and perhaps the sentiment will change.”
“The market has been searching for some good news, that’s for sure.”