The Chinese metal giant is overturning the nickel market again

(Bloomberg) – Fourteen years ago, China’s Tsingshan Holding Group Co. revolutionized the nickel market with a cheaper way to extract the metal used to make stainless steel. It seems like they are doing it once again, this time with a focus on batteries.

The company’s new way of producing nickel for batteries potentially breaks one of the biggest bottlenecks in meeting growing demand, undermining a key pillar supporting the market. The prospect of additional supply sent the metal touching its biggest two-day loss in a decade, and although prices rose on Friday, they are still near a three-month low.

Tsingshan’s move dates back to the early 2000s, when a China-led commodity boom sent prices for the metal used in everything from cookware to airplanes to exceed $ 50,000 a metric ton in 2007. .

The rebound and a supply chain controlled largely by the West prompted Tsingshan to look for a cheaper alternative. He came up with a way to use nickel pig iron from massive deposits in Indonesia, releasing a low-quality substitute that helped bring prices back below $ 10,000 just two years later.

Read more about how Tsingshan built his dominance in the metal market.

Now the world’s leading stainless steel manufacturer and a major nickel producer is shaking up the market again. With prices rising alongside rumors of another supercycle and a bullish outlook for battery demand amid a global energy transformation, the group said it will start supplying nickel matte to battery material producers and plans to expand investments. nickel in Indonesia.

“2007 and 2021 are two milestones for the nickel industry,” said Wenyu Yao, senior commodities strategist at ING Bank.

Nickel rose 1.8% to settle at $ 16,425 a tonne as of 6:07 pm on the London Metal Exchange, after falling 14% in the previous two days. The busiest contract in Shanghai capped its worst day since trading began in 2015. Most of the other LME metals were up on Friday.

Tsingshan goal

Tsingshan plans to process nickel pig iron, previously only used for stainless steel, into an intermediate product known as matte that can be further refined into battery nickel. That can open up a huge new supply route from Indonesia’s low-grade laterite ore mines to electric vehicles and likely reduce the chances of a structural deficit for the material that Elon Musk says is the biggest concern for batteries. by Tesla Inc.

Currently, the nickel that is publicly traded is only for the so-called Class 1 nickel, which must have a minimum purity of 99.8%. That type of nickel only accounts for less than 25% of the total finished nickel supply, according to ING.

“If the new methods Tsingshan developed can be widely applied to produce matte and then convert it to sulfate, we could see a convergence of Class 1 and Class 2 prices,” ING’s Yao said Thursday in a note to clients.

Still, there is the potential for setbacks considering the process is new to the company, according to Celia Wang, an analyst at Mysteel.

It can also take time for mat production to increase substantially. Sydney-listed Nickel Mines Ltd., which has a Tsingshan group company as a substantial shareholder, said on Friday that its projects in Indonesia’s Morowali Industrial Park have not yet undergone the minor modification necessary to mate and will continue. selling NPI at Tsingshan’s. stainless steel operations.

Nickel prices were trading at a six-year high as recently as last month on expectations that growing demand for electric vehicles would cause a shortage. Musk said in February that nickel was Tesla’s top concern for scaling lithium-ion cell production and was behind a switch to use iron in some electric vehicle batteries.

Nickel is critical to the global transition to clean energy. It packs more energy into batteries and enables producers to reduce the use of cobalt, which is more expensive and has a supply chain that is considered less transparent. Musk’s previous comments have drawn attention to the possibility of a crisis. Last year, he begged miners to produce more, promising a “giant contract” for supply produced efficiently and in an “environmentally sensitive manner” amid concerns that a deficit looms as early as 2023.

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