Podcast Summary
Nickel market shifts: Indonesia is now the world's top nickel supplier, and China may soon become a net exporter, with major implications for the global clean energy transition, but sustainability of business models remains a challenge due to market flooding with cheap and low-grade nickel.
The nickel market has undergone significant changes in recent years, with Indonesia becoming the world's top supplier and China transitioning from a net importer to a potential net exporter. These shifts have major implications for the global clean energy transition, as nickel is a crucial component in batteries and other green technologies. However, the sustainability of business models for mining and producing nickel remains a challenge due to market flooding with cheap and low-grade nickel. Michael Vidmer, the Bank of America head of metals research, will join us to delve deeper into these themes and discuss the market dynamics shaping the nickel industry.
Nickel in Batteries: Nickel, a crucial element, mainly used in batteries, particularly those for electric vehicles, drives the battery sector's growth with demand projected to double by 2030. Indonesia, with abundant resources, innovates to meet the demand, becoming a major global supplier.
Nickel, an essential element, serves various purposes in different forms. While it's used in everyday items like belt buckles, its most significant role is in batteries, particularly those used in electric vehicles (EVs). The battery sector, driven by the energy transition, has become the primary consumer of nickel, with demand projected to double by 2030. Indonesia, with its abundant nickel resources, has emerged as a major player in the industry, employing innovative production technologies to meet the surging demand. The former president of Indonesia, Susilo Bambang Yudhoyono, initiated efforts to expand the domestic nickel industry. This strategic decision has positioned Indonesia as a key supplier, contributing significantly to the global nickel market's growth.
China's EV industry dominance: China's strategic focus on securing raw materials for its EV industry led to its dominance through investments, partnerships, and technological transfers in Indonesia, making it the largest producer of EV-related raw materials.
China's strategic focus on developing its electric vehicle (EV) industry over the past two decades, starting with the raw materials supply chain, has led to China becoming the dominant producer of EVs and key raw materials such as nickel, lithium, and cobalt. This was achieved through strategic partnerships, technological transfers, and investments in Indonesia, which is rich in these resources. China recognized the importance of securing a strong domestic supply of raw materials for its EV industry, and the Indonesian government saw the potential value in developing a downstream processing industry. The Chinese government's investment and technological expertise led to the rapid development of the nickel industry in Indonesia, making it the largest producer in the world by 2019. The Chinese processing technologies, such as pressure leaching and pyrometallurgy, have not been successfully replicated elsewhere, giving China a significant advantage in the global EV supply chain. This virtuous cycle of supply chain development has been crucial for China's EV industry growth, as it ensures a steady and abundant supply of critical raw materials for the production of EV batteries.
China's dominance in global supply chain: China's massive market and strategic policies have led to overproduction and low prices in the global supply chain for raw materials like nickel, making it difficult for Western producers to compete. The rise of lithium-ion phosphate batteries challenges the dominance of nickel-based batteries.
China's dominance in the global supply chain for raw materials and manufacturing, particularly in the case of nickel, can be attributed to a combination of factors including their massive domestic market and strategic industrial policies. This has led to overproduction and low prices, making it difficult for Western producers to compete. Additionally, the evolution of battery technology has led to the rise of lithium-ion phosphate batteries, which historically had lower energy density but have since improved, challenging the dominance of nickel-based batteries. Governments and businesses must grapple with the implications of this dominance, including potential overcapacity and the impact on prices and industries.
EV critical materials: The transition to EVs necessitates securing critical materials like nickel for battery production, with solutions including tariffs, recycling, and exploring new sources outside of the Chinese supply chain. The copper market's volatility highlights the need for new projects to meet demand and prevent future price instability.
The transition to electric vehicles (EVs) is a strategic priority for both the US and Europe in their pursuit of a clean energy future. However, there's a tension surrounding the production of critical materials, like nickel, which are essential for EV batteries but not currently profitable to mine. Possible solutions include tariffs to protect domestic industries, increasing recycling efforts, and exploring new sources outside of the Chinese supply chain. The US is looking to countries like Indonesia for potential trade agreements and has existing agreements with Canada and Australia. The less combustion engine cars on the road, the more pressing it becomes to secure raw materials. Another major story in the metals market is volatility, particularly in the copper market. Copper is a mature market with limited new projects in the pipeline due to a decade of underinvestment. This, combined with increasing demand, has led to a supply deficit and volatility in prices. The industry needs to invest in new projects to meet the growing demand and prevent future price volatility.
Metals supply gap during energy transition: The energy transition's demand for metals like copper may outpace new mining projects, leading to potential supply shortages, price volatility, and complex ESG considerations.
While the demand for metals like copper, which is essential for the energy transition, is increasing, the investment in new mining projects may not keep pace due to high prices and regulatory challenges. This could lead to supply shortages and price volatility. The energy transition, driven by the need for ESG-compliant investments, presents a complex issue as it requires the extraction of metals but faces resistance from ESG investors. Innovation and policy changes could help bridge this gap. Another metal to watch is nickel, which has seen significant attention recently but has been overshadowed by copper in previous discussions. The market is evolving rapidly, and staying informed about these trends and potential disruptions is crucial for investors.
Nickel Production Transparency and Recycling: Governments push for higher recycling rates and better design for easier recycling in the opaque scrap metal industry, particularly for nickel production. ESG investors face challenges in engaging with or avoiding problematic industries for clean energy transitions.
The scrap metal industry, particularly in the context of nickel production, is an important but opaque sector with room for improvement. Transparency and recycling are key areas of focus, as governments push for higher recycling rates and better design for easier recycling. The nickel mining industry has been working to reduce its environmental impact, with some operators leading the way in water conservation and community engagement. However, the need to invest in "dirty" industries to promote clean energy transitions presents a complex challenge for ESG investors. The term ESG means different things to different people, and finding a balance between engaging with and avoiding problematic industries is an ongoing debate. Indonesia's rise as a major player in the nickel market is a recent development, driven in part by its efforts to capture more value downstream. The technological advancements in nickel processing, particularly in China, have also played a significant role in increasing production.
Chinese petrochemical advantage: Chinese producers have a significant cost advantage due to their massive refining capacity for petrochemicals and critical minerals, making them more competitive in industries like advanced textiles and EV manufacturing.
Key takeaway from the recent episode of the OddLods podcast featuring a conversation with the CEO of Unify in North Carolina is the significant advantage Chinese producers have due to the massive refining capacity for petrochemicals and critical minerals in China. This edge is particularly noticeable in industries like advanced textiles and EV manufacturing. The sheer scale of China's domestic petrochemical industry provides these producers with a cost advantage, making them more competitive in the global market. This was just one of the insights gained during the trip with Tom Barkin. For more in-depth discussions on various topics, listeners can tune into the OddLods podcast, available on Bloomberg.com, or join the OddLods Discord community to engage with fellow listeners. Additionally, Bloomberg subscribers can access all OddLods episodes ad-free by connecting their Bloomberg account with Apple Podcasts.