Nickel is the biggest challenge for high-volume, long-range batteries!” Elon Musk
Cobalt, lithium and copper have often dominated headlines about electric vehicles and energy transition. But there is another metal, traditionally used to produce stainless steel, which has emerged as a critical element in the energy transition story. Nickel is a key material in the production of electric car batteries (EV) which are experiencing rapid growth as the world moves away from fossil fuels.
These shifts mean that nickel is in hot demand and EV manufacturers are chasing precious supplies of the metal. The recognition that batteries are central to energy transition supply chains and ultimately national economies has set in motion a geopolitical race to secure supplies.
Tsingshan, a Chinese firm which is the world’s biggest producer of nickel was badly stung by this shock, losing large sums of money. Tsingshan are now reportedly looking to sell its Indonesian nickel assets to another Chinese giant Baowu. But how did it get them in the first place….
Nickel production is currently dominated by just a few countries; namely the Philippines, Russia, New Caledonia, Australia and Indonesia. This places enormous power in the hands of just a few suppliers. For instance, the fear that Russian supplies of nickel could disappear from the market following the country’s attack on Ukraine in February 2022 caused prices to rise an unprecedented 250 percent on the London Metal Exchange (LME).
It was a nickel shortage in China following the great financial crisis in 2008 that originally prompted Chinese steel giant Tsingshan to secure long term supplies. A decade ago, nickel was primarily in demand because it is a vital part of the stainless steel making process.
It soon also became apparent that nickel was also needed for building electric car batteries, which so much of the transition economy depends upon. At first sight securing nickel supplies should be easy. Indonesia is one of China’s major trading partners and holds the world’s biggest reserves of the metal.
However, the Indonesian government had realised that selling raw nickel might bring strong short-term revenues, but eventually this would leave them exposed to global commodity downswings. Instead, the Indonesian government had an ambitious plan to move up the production cycle and to process nickel to make the purified product which is needed for EVs. A more profitable process than just exporting the raw ore.
Tsingshan got on board with this vision and started investing heavily in the Indonesian district of Morowali, building the infrastructure to mine, refine and then finally ship nickel to China. There are plans for the electric battery production and an integrated supply chain for EV batteries to be established in Indonesia. An MOU was signed with CATL the Chinese battery producer in 2020 but nothing solid has yet materialised.
Enter the Dragon
Other Chinese firms soon followed in Tsingshan’s footsteps into Indonesia to secure nickel and other critical metals. Tesla was reportedly in talks with Indonesia mining interests but pulled out due to environmental concerns.
Tesla’s move highlighted the fact that environmental protections can be lax in Indonesia and that the processing of nickel can be highly carbon intensive. The nickel mines in the Indonesian Obi Islands have seriously polluted the waters around the islands turning them red.
This devasted the lives of fisherman and created a lot of anger towards nickel mining firms. Indonesian nickel is smelted using coal, which is a big problem for EV producers who want a carbon free supply chain.
The Geopolitical Race Heats Up
In August 2022 the Biden Administration launched a program to secure critical supply chains. This has accelerated a geopolitical race to secure supplies of critical materials for electric vehicle production and other key ingredients for global energy transition. Countries and corporations want to secure supplies from friendly countries so conflict or trade wars do not interrupt supplies.
Demand for nickel is expected to rise 10 fold by 2030, with supplies relatively limited and difficult to access due to local environmental and social concerns as well as the cost of developing new mines means further geopolitical competition to ensure that supplies of nickel are secure. This will mean China, the US and others which have realised the importance of reliable EV supply chains and ensuring good relations with the states which hold deposits of nickel and other critical metals is a priority.
The US fears that supply chain issues and reserves in the hands of rivals could see supplies of critical material dry up strangling the the young EV sector.
After pleading with miners to secure new supplies of nickel Tesla signed a contract with Talon Metals in 2020 to provide US mined nickel. Talon have claimed they can mine Nickel in a carbon neutral manner. This claim is a big plus for environmentally conscious battery makers like Tesla who are under pressure to ensure their vehicles are zero or low carbon.
Whether Talon can deliver on its promise of carbon neutral nickel remains to be seen. But at the very least Tesla’s deal also shows that the demand for sustainably produced nickel is there.
Another cost hangs over nickel the enormous environmental damage that it can cause. The Fenix nickel mine in Guatemala has been the scene of a long running and violent dispute over pollution in Lake Izabal. When local fishermen complained of a rusty coloured patch of water in the lake they took their concerns to the authorities. But the government and the miners attempted to put a lid on complaints about the mine, resulting in a long running dispute.
Activists managed to get the mines licence revoked, but the mine owners in league with the government struck back using threats, bribes, arrests and eventually martial law to supress the protests and reinstate the mine.
Hackivists took internal emails from the miners (Solway group a Swiss company) and exposed publicy that the firm knew the pollution was from the mine and not an algae bloom as they claimed.
As demand for nickel rockets, the pressure to develop new mines will rise. Each new mine is likely to put pressure on local communities that face the environmental destruction and pollution that nickel mining brings.
“I think ESG risk cannot be separated from business risk. The dichotomy only leads us to the old pattern that caused the current climate crisis,” says Muhammad Rushdi, a researcher with Indonesian NGO Action for Ecology and People’s Emancipation (AEER).
The Goro mine in New Caledonia is another that has attracted criticism thanks to five chemical spills and a chequered history of production. Ownership passed from Brazilian Vale to locally owned Prony Resources along with Trafigura which has promised to develop a social licence and local investment, taking into account the wishes of the Kanak people that were previously ignored.
Tesla have also become a stakeholder (or technical advisor) in Goro bringing greaterscrutiny and the hope that it will encourage best environmental practices.
Nickel production creates a lot of waste, if it isn’t dumped in the sea it needs to be drystacked or tail dammed, both options need a lot of land. The other alternative is deep sea disposal, currently only 20 mines use this method as it is notorious for destroying marine environments.
What next for Nickel?
Clearly nickel mining needs to be carefully regulated to ensure environmental issues are minimised and future environmental incidents do not become a pattern. The risk is not only to local people and communities but also to the electric battery sector – if it becomes associated with poor environmental practices it will undermine both its green credentials and the wider clean energy transition.
As well as an environmental flashpoint New Caledonia could also see geopolitical tensions over its mining assets. China is the world’s biggest EV manufacturer not coincidentally is also the biggest purchaser of nickel from the island. The Pacific island is a French province which has been rocked by demands for independence and any future shifts away from France will be watched carefully by Beijing as an opportunity to extend its influence in the region.
The race for nickel looks set to heat up over the next decade as EV batteries become a central part of the global economy. Control over nickel supplies and their carbon/environmental impact will be of critical importance to battery/car manufacturers and the countries which have an interest in controlling this vital supply chain.
Developing environmentally sustainable mines as promised by Talon will be an increasing priority for EV producers that are particularly sensitive to any criticism that their products are not green.