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Markets Shouldn’t Get Too Comfortable With Levels of Nickel Supply

The supply of nickel is facing significant challenges as demand is expected to skyrocket in the coming years, particularly due to the growing electric battery industry and the global shift towards clean energy. However, markets have yet to fully acknowledge the difficulties in meeting this rising demand.

Two primary issues contribute to this looming supply problem: limited mining capacity and the environmental impact of mining operations.

The demand for nickel in electric vehicle batteries is set to double by 2030, as predicted by The Oregon Group's Investment Insights. Nevertheless, a deficit in Class I battery-grade nickel is anticipated to persist, according to The Oregon Group's Investment report.

So why are markets seemingly unconcerned? Currently, Indonesia dominates global nickel output, accounting for 47% this year, a significant increase from 38% in the first seven months of 2021. This figure is projected to rise further, potentially reaching 60% by 2030.

Indonesia has experienced a remarkable 41% increase in production from January to August 2022 compared to the previous year, driving global production up by 14%. This growth has been primarily facilitated by substantial Chinese investments in Indonesia's nickel mining industry. The most recent example is a $1.8 billion agreement between nickel miner PT Vale Indonesia and China's Zhejiang Huayou Cobalt to construct a new plant for nickel production destined for electric batteries.

The Philippines, the world's second-largest nickel exporter, witnessed a 17% rise in nickel production from 2020 to 2021, marking a six-year high. Furthermore, up to twelve new mines, predominantly nickel mines, are scheduled to commence operations this year alone.

Despite the short-term increase in nickel production, economic concerns in the United States and Europe, coupled with China's persistent zero-Covid policy and periodic lockdowns, have dampened economic activity and demand.

However, demand for nickel is poised to surge significantly in the long term. Forecasts predict a doubling of demand to six million tonnes by 2040, with nickel's share in electric battery production rising from 7% in 2021 to 40% by 2040. Goldman Sachs goes even further, estimating that electric batteries will account for 32% of global nickel demand by 2030.

This soaring demand is driven by government regulations worldwide aimed at phasing out internal combustion engine vehicles in favor of achieving net-zero targets. The electric vehicle market is expected to grow sixfold, with annual sales projected to increase from 6.5 million in 2021 to 40 million by 2030. Fulfilling this demand would require the establishment of 200 additional battery gigafactories, on top of the existing 130 gigafactories.

In summary, while markets may currently appear complacent, the supply of nickel is facing imminent challenges. The surge in demand from the electric battery industry, combined with environmental concerns and limited mining capacity, makes it imperative to address the potential nickel supply deficit.

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