In the first half of 2017, nickel was selling for an average price of US$4.43 a pound and there was an increasing glut of nickel in London Metal Exchange warehouses.
On Aug. 31, that glut reached a whopping 389,154 tonnes.
Fast-forward to today and it’s a totally different picture.
Last week, LME nickel stockpiles had shrunk to 278,800 tonnes. The metal also broke through the US$7-a-pound mark last week — a gain of about $1.50 pound since last December. Nickel started the day Friday at $7.10 pound, but had dropped to $6.96/pound U.S. by the end of the day, and has dropped a bit more since then.
Terry Ortslan, mining analyst with TSO & Associates in Montreal, said a combination of the weakening of the U.S. dollar and hoarding by traders in anticipation of nickel needed for electric vehicles is causing rising prices and inventory drops.
“(A weaker U.S. dollar) makes commodities stronger,” he said. “That’s a huge influence in commodity prices.”
Ortslan added that Class 1 nickel, which is the type of nickel produced in the Sudbury Basin, is a high grade of nickel and the type required for electric vehicle batteries.
“People are positioning themselves for the electric vehicles,” he said. “Nothing is going to happen in the short term, but three, four years down the road, there is going to be a serious electric vehicle industry. Four, five years in the mining business is like tomorrow.”
Ortslan said the annual nickel demand for electric vehicle batteries could translate into some 200,000 tonnes of nickel or about 10 per cent of the world market.
“It’s a big value,” he said.
Stan Sudol, a Greater Sudbury native who now lives in Toronto and has a strong interest in mining, including being the owner/editor of a mining-themed website entitled The Republic of Mining, also feels the price surge is due to the growing need for nickel in electric vehicle batteries.
“With the enormous potential of electric vehicles whose batteries use significant quantities of nickel, the pressure on global nickel inventories is increasing,” he said. “The significant decrease in London Metal Exchange Class One nickel – a very pure form of the metal – is causing concern about whether there will be a return to the nickel shortages of the past century.”
Sudol said yearly global nickel production is about 2.1 million metric tonnes, of which roughly 65 per cent is used in the manufacturing of stainless steel. In contrast, the world produces about 20 million metric tonnes of copper, 13 million tonnes of zinc and has the capacity to smelt 60 million tonnes of aluminum.
From the start of the Second World War up to the late 1970s, except for recessions, Sudol said global shortages for nickel were a constant headache for industry, resulting in enormous growth in Sudbury since we were the primary source of this extraordinary material.
Sudbury nickel was critical for the Second World War, and Korea and Vietnam, wars. It was a fundamental building block for stainless steel, the development of supernickel alloys that allowed jet engines to fly and even helped the Americans put a man on the moon, he said.
Decades of expanded nickel production elsewhere around the world took away Sudbury’s nickel shine and commanding percentage of western global production – which at its peak was about 80-90 per cent.
“The impending explosion of electric vehicles and their nickel reliant batteries may once again focus global attention on Greater Sudbury,” said Sudol.
Nickel is produced from sulphide rocks that are found in the Sudbury Basin and in Russian’s Norilsk and two types of laterite rocks (limonite and saprolite) found in tropical countries like Indonesia and the Philippines. Only the nickel from sulphides and laterites (limonite) are pure enough to be used in the manufacturing of electric vehicle batteries. The laterites (saprolite) nickel and nickel pig iron are low-grade material that is fine for stainless steel, but not batteries.
Global nickel production is currently split roughly between the sulphide and two laterite ore sources, he said.
Many analysts estimate that within five to seven years, said Sudol, the market for nickel will increase to around 2.5 million metric tonnes as the volume of electric vehicles increases. There are not many new sulphide or laterite (limonite) deposits being discovered.
The Sudbury Basin is still the world’s second-largest nickel sulphide district in the world. As a geo-political bonus, this deposit is in a politically secure, fully integrated – mines, mills, smelters and a refinery – mine-friendly jurisdiction, he said.
While the underground mines are expensive to build, the polymetalic nature of the ore not only includes nickel, but copper, cobalt, platinum group metals (PGMs) as well as gold, silver and a few other minerals that justify the construction of deeper mines, and refining is easy, said Sudol.
In contrast, nickel laterite deposits are lower-cost, open pit mines, but the processing for the laterite (limonite) deposits is complicated and expensive, and the only by-product metal is cobalt.
The recent announcement by Vale to invest Cdn $760 million in Phase 1 of its Copper Cliff Deep mine and Glencore’s Cdn $900 million investment in its Onaping Depth project, indicate renewed confidence in the nickel market and the enormous potential of this region, said Sudol. Both companies are also increasing their exploration budgets for Sudbury.
Meanwhile, KGHM’s Victoria deposit, also located in Greater Sudbury, is waiting for investment from the Polish company.