When Tsingshan, the world's largest nickel producer, made nickel supply announcements in the past, nickel prices moved significantly in tandem. How will nickel prices be impacted by Tsingshan's plans to convert class II nickel to class I nickel for electric vehicle batteries? How mature is this technology?
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In this update:
00:00 Introduction
00:45 Tsingshan to disrupt the nickel market again?
02:39 Should nickel bulls be worried about 'dirty' Tsinghan battery metals?
04:19 Nickel prices fall on Tsingshan's announcement
07:22 Tesla or Tsingshan: nickel market at crossroads
09:51 Trafigura bets on green-nickel squeeze in defiance of China cure
13:09 Ken Hoffman: Demand for nickel in EV batteries could lead to supply shortage
14:41 8.5 times more nickel needed by 2025
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See Full Video Transcript Below
Hello again everyone and welcome to another edition of silver bullion television SBTV I'm Stephen T. and we're here with another electric vehicles metals market update dated early July 2021 where we're continuing our review of some of the biggest stories that dominated in the first half of this year on today's show we'll be continuing with our look at nickel of course and focusing on the Chinese nickel giant Tsingshan and their impact on the market as well as the implications of some of their announcements for nickel investors now before we do if you're in fact new to this channel or if you have to subscribe please subscribe to our channel hit the bell button for notifications and updates from us and feel free to give us a thumbs up or a like if you do enjoy what we do because we truly do appreciate your support and thank you greatly for it we begin with this March 2021 report here from Roskill titled Nickel Tsingshan to Disrupt The Nickel Market again now the article begins attention the world's largest nickel producer announced last week it will supply nickel mat based on converted nickel pig iron or NPI from its operations at Indonesia's Morowali Industrial Park IMIP supplies will go to Chinese companies Huayou and CNG are advanced materials which will be further processed to produce battery grade nickel sulfate Tsingshan will supply 60 kilotons of nickel matte gross Huayou and 40 kilotons of macros to CNGR within a one year period starting from October 2021. Tsingshan now also claims that it has the capability to supply high-grade nickel matte on a regular basis switching very quickly here to S&P global market intelligence's March report for nickel by Jason Sappor says that the LME three-month nickel price dropped from a seven year high of twenty thousand us dollars per tonne in trading in late February to sixteen thousand dollars per ton on March 30th the lowest since november 2020 upon Tsingshan's announcement it says here that this quarter London metal exchange nickel prices are set to record their worst performance since the same period a year ago after a potential game-changing battery nickel supply announcement from China's Tsingshan group depressed polish investors sentiment this year is important here Tsingshan will supply a combined total of 000 tons of nickel matte beginning in October now some investors may be wondering what nickel matte actually even is as you all know silver bullion only offers Class one nickel the finest grade of nickel so to speak the kind most desired for using EV batteries by automakers and EV giants and mine fresh from sulphide all so why would our investors need to know about Class 2 nickel let alone intermediates between Class 1 and Class 2 like nickel man and that's exactly what it is but if it's all a tad confusing at the moment right now let's get back to some definitions if you find yourself sweating like Robert Hayes in the comedy Classic airplane Australian business resource publication stock had had this headline should nickel balls be worried about dirty things on battery metals by Ruben Adams the article says first some definitions nickel is usually found in two main ore types sulfide or laterite laterites Class two are good for NPI nickel pig iron which is used as a cheaper alternative to pure nickel for the production of stainless steel sulfites Class 1 the kind we sell at silver bullion are turned into battery grade nickel sulfate much more cheaply and easier than nickel laterites and they fetch a higher price now most investors understand the two Classes of nickel yet some investors invariably ask but why then does Tshingshan even matter isn't it just dealing with Class 2 stainless steel nickel and on one hand that's true yet Tsingshan matters because one as the world's largest nickel consumer as well as nickel stainless steel producer their mere statement and announcement that they are developing technology to turn Class 2 later I don't into nickel pig iron and then taking that nickel pig iron to move it into the intermediate stuff known as nickel mat and then taking that nickel matte crossing from Class two into Class one to turn it into nickel sulfate which then can go on into EV batteries that tree level jump excuse me which Tshingshan is claiming it's able to do that has consequences because if they can do what they claim could they possibly suddenly change the nickel supply chain bottleneck that we saw in the previous episode the second issue is that tincture matters because just mere claim or announcement that they are already going to create or suddenly create Class 1 battery grade nickel from Class 2 nickel that has already had an effect on global nickel prices very quickly this S&P Global Market Intelligence chart shows you that LME nickel prices dropped upon Tsingshan's announcement in March we can see the blue line the lightest blue line indicates nickel prices rising and coming down again in 2019 before going right through the Covid19 pandemic throughout 2020 which is the dark blue line or the black line and this continued all the way upwards on the trajectory up until the high point in February which is now indicating the yellow line which refers to 2021 now the prices were already coming down but Tsingshan's announcement obviously plummeted it down a little bit further now of course since then the nickel price has been steadily rising again back to 18 000 us dollars per ton recently which shows you denied it possibly that the nickel market is much more robust than we otherwise might have perceived however because China at once used old fairness processes to create a massive increase in the output of low-grade nickel that became known as nickel pig iron or NPI as we talked about earlier and this was done back in 2007 and this back then put a strain on pure nickel demand and then affected the price back then so now once again fast forward a decade later Tsingshan step up again and this time they're using the all from Indonesia once again so investors have naturally expressed caution while others meanwhile have said well perhaps this time this is a good thing after all aren't experts all talking about a potential Class 1 nickel sulfite supply shortage returning to stockhead's article it says that supply of nickel sulfides is declining because of lack of new discoveries at the same time demand is climbing hence the bullish sentiment which had driven prices to near 10-year highs news that Tsingshan was about to supply a big chunk of this battery nickel shortfall with converted Class 2 nickel largely avoided until now due to higher conversion costs loss of cobalt as a byproduct and an elevated carbon footprint was enough to put a dent in this sentiment now we'll get back to the carbon footprint point really shortly but as a quick aside on the point about the lack of new discoveries SBTV was speaking to nickel 28 CEO Anthony Milewski last month as some of our audiences may recall and he told us that the lack of price incentives remains the real concern because for him producers will currently not risk building too many new mines to meet the Class one global nickel shortage until nickel's price rises to a point that incentivizes them to do so with promise of solid returns and this is where we hid somewhat of a so-called ostensible paradox of some sort and probably explain why some are divided about Tsingshan you see the world acknowledges that there is a Class one nickel shortage you need nickel prices to arise so that more mines will be built to extract that Class one nickel Tsingshan have stepped in and said hey we could take Class two nickel bypass the processors and get to Class one and we'll save time ironically it is Tsingshan's announcement that has nickels prices have gone downwards because investors are taking a cautious wait-and-see approach to see if saint john ting can actually deliver now Alex Hamer of the Investor's Chronicle UK calls this to crossroads he wrote a headline here the article titled Tesla or tinker nickel market at crossroads and goes on to say that the Tsingshan deal essentially effectively sees the company promised to fill Class 1 demand with Class 2 supply possibly removing the price gap and supply concerns nickel matte which Tsingshan is selling is the last step in a lot of processing now this isn't just sending the oil around the plant a few more times this process will add cost and carbon footprint compared to Class 1 nickel supply goes on to say that Tsingshan has previously managed to generate some level of notoriety outside the metals world thanks to a plan to dump millions of tonnes of mine waste into the sea in Indonesia while this has since been rethought the processing needed to turn the ore from these mines high pressure acid leaching or HPAL is still extremely expensive and hard to get right on top of needing huge amounts of power often from coal plants now HPAL or High-Pressure Acid Leaching acid is known as a huge topic which we will have to cover in another episode separately but for our purposes HPAL is the main method that's been developed in the nickel industry with the hope that the industry can convert low grade laterite or Class 2 nickel into premium grade Class 1 battery grade nickel material through chemical processing that is you know arguably safer HPAL however has proven an expensive process over the years with cost overruns in several projects and mines and Tsingshan stepped in to say hey we can bypass HPAL as well with our process Alex Hemer however is saying that Tsingshan's very announcement forces the nickel market to make a choice at the crossroads should EV battery makers go with Tsingshan or stick to existing methods like continuing to push with new Class 1 mines as we've been talking about whilst at the same time waiting for HPAL to become more effective it would also seem then that HPAL's risks and costs were already factored into why the nickel prices were continuing to go up in saw in recent years this of course until Tsingshan came in with the announcement that they're offering a short-term supply solution while the kinks of HPAL are no pun intended ironed down Hamer however is saying that because of these ESG and quality risks companies like Tesla remain at these crossroads when it comes to the longer term but here's the thing have giants like Tesla actually already made their choice at the crossroads now in our last episode we saw that Tesla went to new Caledonia to sit as advisors on the Goro Nickel Mine that was sold by South American mining giant violates a Swiss consortium consisting of Trafigura and we can see here the trick figure is named in this article as batting on a green nickel squeeze in defiance of a Chinese cure this article by Yvonne Ali and Andy Hoffman I'm just going to zoom in here for a bit and we can see an important quote from one Socrates economy head of nickel and cobalt trading at trifigure his quote says the Goro deal shows Trafigura and Tesla don't see Tsingshan's new processing method as a panacea the meeting surging demand for nickel used in the batteries needed to help wean the world offer fossil fuels car makers is preference for cleaner sources of aluminum and cobalt suggest they'll follow a similar line on nickel now could this article be right in saying that two figures were willing to buy over the global mine asset even though it was losing money precisely because they were betting that Tesla would still come to them and would this mean Tesla if they are emblematic of the other EV giants would it prove that they've already made their decision have the EV market giants already indicated that they may not want to risk using Tsingshan's supplies furthermore roscoe's report actually says that what Tsingshan claims it is able to do it's barely all not all that new at all. The Roskill view is that Tsingshan's plans to convert NPI or a lower grade nickel ferro-nickel that we've seen earlier on to an intermediate nickel matte it's not an entirely new processing concept for nickel the French mining giant Eramet previously converted a portion of its ferro-nickel output to produce nickel m at its Donai Ambo operation in new Caledonia what's interesting for us is that Eramet subsequently ended this process as you can see here instead opting to export fare nickel to stainless steel mills in Asia further on in this article we can see that despite Tsingshan demonstrating the NPI to map conversion process to be economically viable concerns remain over the sustainability of this source of nickel production smelting of laterite ores to produce NPI is highly energy intensive and with these operations reliance on coal burning as an energy source this nickel is associated with the sum of the highest co2 emissions in the industry this could provide western original equipment manufacturers or OEMS the likes of Tesla with a difficult decision in terms of nickel procurement from these sources after all these companies have placed ESG high up on their list of raw material procurement criteria so the Roskill team makes some excellent points there is also the matter of zinc on being the world's largest nickel consumer at the same time as being one of the world's largest producers of nickel stainless steel of course but is there a potential conflict in that Tsingshan needs nickel prices to be low for it to continue by nickel cheaply so that it can keep producing nickel and is there also a need for us to discern as investors and draw certain conclusions from certain announcements that have been put out without it casting any aspersions of course as you can see these are all masses investors have to factor in and tether and manage yet are we also in danger in danger of being too harsh on Tsingshan Ken Hoffman of McKenzie reminds us that perhaps we shouldn't jump too quickly to condemn Tsingshan or reach oversimplified conclusions either now back at the global mining symposium in may Ken Hoffman told editor Frick else of the northern miner that the process Tsingshan plans to use isn't new and dates to the mid-1970s it didn't work fantastically well it's not cheap either the purity of the product is another issue too contracts for nickel products are often required to specify impurities down to the parts per billion he's noted in particular the presence of iron in the product can detrimentally affect the EV battery's performance however Hoffman said he hopes that Tsingshan's plans work as every $1,000 increase in the nickel price adds about 80 cents per kilowatt hour to the cost of an EV if prices increase by 10,000 US dollars to 15,000 us dollars per ton you're looking at about a 20 to 30 increase in the cost of the battery he explained now this would dovetail it seems with this article titled the many forces driving nickel price volatility was written by Gregory DL Morris the fast markets team including those that put this on metal market magazine published this article and Gregory DL Morris was speaking to the head of battery research at fast markets and he had this to say his name is Will Adams he said in most cases nickel is likely to be a very sought after metal but some battery raw material companies are looking at making nickel sulfate from the oars that goes to make Class two nickel materials such as nickel pick iron as we have seen on today's show this is the critical bit only if they're economically viable and environmentally acceptable that would just take some pressure off of nickel produces now fast markets also has a graphic here which shows that by 2025 the amount of nickel used by EVs is estimated to be 8.5 times more than in 2018 this means you need 600,000 tonnes of nickel compared to the 70,000 tons in 2018 and for Hoffman and Adams as we've seen in the preceding articles perhaps there's enough of the demand by to go around and you can afford to have Tsingshan coming up with a way to increase nickel supply to some degree and extent provided they get the quality right which has proved difficult over the years now Tsingshan claimed it will have deliverables by October of this year and if they fail the nickel price would and might possibly conversely resume its stunning rise the thing is even if Tsingshan do pull it off will Tesla and the EV manufacturers risk buying Tsingshan's product considering quality and ESG issues are at play and at stake in contrast Class 1 nickel for EV batteries mined from nickel sulfide all remains unchanged these are hard assets the kind we offer at silver bullion now on the show we merely offer financial opinion and not financial advice obviously so you will have to make your own call on all this but it would seem that investors who truly understand the nickel market would remain focused on the bigger picture and the EV long game and not fear the zing chance of this world at all now that's all our time we have this week and this edition of SBTV's EV metals market update until next month saddle up silver up and take care
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