NICKEL: ABUNDANT BUT

IN SHORT SUPPLY?
Ho w the EV market will create a short, why it can’t be substituted in stainless
steel, and what manufacturers can do about it.

Joshua Williammee
International Accounts Manager
In Hong Enterprise, LTD
Kaohsiung, Taiwan
Email: joshua@inhong.tw
Phone: (+886) 0906-881-709
 JOSHUA WILLIAMMEE

CONTENTS

N IC K E L: ABU N DA N T BUT IN SH O R T SU PP L Y ?

Abstract.......................................................................................................................................................................... 3

Why is the demand for nickel increasing indefinitely?.........................................錯誤! 尚未定義書籤。

The class confusion................................................................................................................................................... 5
The difficulty of substituting nickel in stainless........................................................................................... 6
What can we do about it?........................................................................................................................................8

Nickel: Abundant but in short supply? 2

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ABSTRACT

The recent war in Ukraine has got the supply world talking about nickel. The conflict
caused a 250% spike in spot prices, leading the LME to halt trading. Ultimately, the short-
term trading price will return to ‘normal’ levels. However, the long-term nickel forecast is
one of shortage, and this deserves the attention of manufacturers who use stainless steel.
This paper provokes supply managers and manufacturers alike to consider creative ways to
deal with the problem.

Why is the demand for nickel increasing indefinitely?

Demand of nickel is increasingly outstripping supply. The main driver in this demand is
the electric vehicle revolution. The lithium-ion batteries used in EVs need a substantial
amount of nickel (up to 60 lbs!). Lithium batteries use the flow of ions from anode to cathode
for charging and discharging, and nickel is an excellent material for cathodes, as it allows for
high density storage. What is important for stainless steel suppliers to understand is that the
amount of nickel used in NMC (Nickel, Manganese, and Cobalt) EV batteries is continuing to
increase as competitors seek to create longer range and more powerful batteries. And battery
manufacturers have been hard put to find a worthy substitute for nickel in batteries.

While substitutes like Lithium iron phosphate batteries (LFP) can be manufactured
without much nickel, both energy density and output are quite lower than NMC types, and
LFPs are also larger and heavier.

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Will manufacturers choose to use a heavier, less powerful battery source to produce
EV’s to cut costs? With the growth of the EV market (See chart below for 20 year projection)
and the assumed inflation of the global consumables market, this seems unlikely.
Manufacturers, especially in higher-end items, tend to simply bake the high cost of materials
into retail prices, which consumers will pay without much protest. A difference of a few
hundred or even thousand dollars in luxury items like EVs has historically not been a
hindrance to sales.

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The most rapid increase of EVs in total auto market share is forecast in this deacade. By
2030, as seen in the graph above, this growth will most likely outstrip supply. While
consumption increases quickly, the supply actually seems to plateau, and then slowly declines.
This does not reflect the disappearance of nickel or its being ‘used up’. Nickel is the earth’s
fifth-most abundant resource. But the easier-to-reach deposits as well as more pure varieties
are not inexhaustible. This is forcing mining operations to use more unconventional methods
as well as pushing refiners to use energy-intensiveness methods to purify a ‘dirtier’ grade.

The Class Confusion

Class 1 nickel, simply put, is a purity of 99.8% or more, and is deliverable to the LME (where
the exchange tends to even out prices), while Class 2 nickels are less than 99% and only sold
directly to consumers, so the pricing is much more volatile for the latter. Sulfides (usually
containing more pure nickel) and laterites (usually not so pure) can make the refining process
less expensive or energy intensive, but the demand for the purest nickels, as those used in
battery cathodes, is going to continue to be much greater than what can be easily mined and
processed from sulfides. The only part of nickel production that can be improved on currently
is the speed and cost at which the ore is refined into a usable product. Many manufacturers
that use stainless steel as well as investors in metals are unaware of this subtle but critical
difference.

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It is likely that processes, as in all industries, will continue to improve and become
more efficient. It is possible that many of the current nickel resources in the earth’s crust,
whether sub oceanic or not, will become easier and cheaper to process in the near future.
Betting on an improvement in mining to bring down prices is a risky wager for manufacturers,
however. Something that should be kept in mind is the resistance in the developed world
toward “dirty” refining processes that leave larger carbon footprints. The advent of nickel pig
iron (NPI) in China illustrates this problem. China essentially uses high amounts of electric
heat to refine and then re-refine low-grade nickel ore until the purity is something like 10% in
weight. Ideally, this ferronickel can be used in stainless steel production, because, naturally,
stainless steel is a blend of iron, carbon, and nickel. However, the energy intensiveness of the
process as well as political issues between China and Indonesia (the largest nickel producer in
the world) put limits on this expansion in the shorter term. In the long term, the overall cost
difference between refining purer (sulphide) ores or using “dirtier” material like NPI is a
savings of about 10% - not enough to make up for the exponential growth in demand in the
coming years.

The idea of clean energy has already become institutionalized in the West, and continues
to spread rapidly in countries that don’t want to miss out on doing business with the world’s
biggest consumer markets. This is not good news for those using nickel, as cheaper processing
like the aforementioned Chinese nickel pig iron will be scrutinized and rejected by an
increasing number of countries. The Green movement will continue to gain momentum and
eventually pressure even the most undeveloped mining and manufacturing areas to ‘go clean’.

So, NMC batteries are not likely to be replaced by slower nickel-free types and a cleaner,
greener worldview in manufacturing will discount many of the cheaper and faster ways to
process nickel. If we can’t do much about substituting or getting cheaper pure-nickel battery
cathodes, couldn’t we at least find good substitutes for nickel in stainless steel?

The difficulty of substituting nickel in stainless steel

While the EV market is increasing the amount of nickel demand, it still pales in comparison
to the amount of Ni used in stainless steels. Approximately 75% of worldwide nickel is used in
stainless steel production. Other common uses are in super-alloys and electroplating.

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Because of the versatility, durability, and aesthetics of stainless steels, their usage will
only continue in the foreseeable future. In certain industries like petroleum, there are
practically no alternatives when considering the pressure, heat, and environment the piping is
exposed to.

The most universal stainless steels, 304 and 316, are composed of a minimum of 8% to
15% nickel, respectively.

Stainless Steel Chemical Composition

Element %
Grade
C Si. Mn P S Ni. Cr Mo

SUS 304 0.08 1 2 0.045 0.03 8.0~10.5 18.0~20.0 ……

SUS 316 0.08 1 2 0.045 0.03 10.0~14.0 16.0~18.0 2.0~3.0

As far back as World War II, substitutes for nickel were being researched and invented.

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Producers found that using higher quantities of manganese, nitrogen, and copper could
mimic some of the properties of nickel. However, these substitutes cannot do what nickel
does so well – changing the ferrite structure to an austenitic one and producing a corrosion-
proof surface. Without nickel, there is no austenitic process, and therefore, the corrosion
resistance, strength, and form needed for stainless steels is absent. Aluminum, which also has
anti-rusting properties, is usually more expensive than stainless steel, and in high-heat
applications tends to soften at 400 F and above. Aluminum is higher in cost and more limited
in application.

What can we do about it?

In this paper, I have posited that:

1. The emerging EV market will explode in growth by the end of the decade, bringing a
massive increase in demand for nickel used in EV battery cathodes

2. While there are plenty of nickel reserves in the earth’s crust, the problem is the speed at
which we can access and economically refine these ores. In addition, the a growing acceptance
of environmentalism will cause more developed countries to reject high-energy smelting
processes in favor of “greener” methods, albeit with higher costs to manufacturer and
consumer. These costs will be taken for granted.

3. Although certain substitutes for nickel exist, they just don’t measure up to the rigorous
demands of many stainless applications, especially with corrosive chemicals and high-heat.

Below are some suggestions for manufacturers to consider in dealing with an ever-
increasing price in stainless steel raw and semi-finished products:

1.Futures hedging – While smaller companies might suppose they don’t not have the
inventory quantities necessary for engaging in futures markets, this is simply not true. Many
small companies do not have personnel directly responsible for hedging, and managers who
do not fully understand futures markets are often leery of anything that reminisces of
financial markets which seem a world away from the daily grind of production lines. This is a
result, firstly, of lack of education about retail financial markets and secondly, as a result of

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overspecialization (finance and procurement being separated). Larger enterprises are often
more successful in controlling the effects of fluctuating material pricing because they have
specialists, often employed full-time, who manage material markets. But smaller companies
can take advantage of this terrific tool with enough education and an open mind.

Allow me to provide an example of hedging:

Company A might anticipate the price of nickel to steadily increase over the next five
years. The annually average carrying inventory is 100 tonnes. It is the year 2022. The asking
price for a tonne of nickel is $20,000. A futures contract for 2025 in January might be bought
with a target price of $20,000 per tonne (the current ask price). Eventually, in 2025, the price
climbs to $23000. The company is allowed to “purchase” the nickel at $20,000 and cash in
on the difference ($3,000). While a profit was made on the purchase from 2022 – 2025, there
was a subsequent “loss” as the company continued to buy material at increasing prices. This
strategy is referred to, therefore, as hedging. It simply mitigates the risks associated with
purchasing raw materials in any highly fluctuating market.

2. While the world economy and fluctuating material prices might be beyond the control
of even the largest companies, in house production and processes can be controlled to a large
extent. Many are familiar with production improvement philosophies and applications, such
as Six Sigma. While the ideal of 3.4 errors per million might be a far cry in certain industries,
many medium and small companies are surprised by inefficiencies and waste present in
manufacturing and services that have been going on for years unnoticed or unsolved. It is
human nature to focus on external situations beyond our control as opposed to introspection
and self-correction, but this is what separates successful companies from unsuccessful ones –
the willingness to admit error and do something about it.

Where in your production or service process might you improve? Is there too much
inventory building up and sitting for long periods of time? This inventory is tying up money
that could be invested in machinery improvements, training for employees, business trips,
marketing, etc. Inventory has absolutely no value sitting in the warehouse. Is there a
bottleneck in the factory, where semi-finished parts sit in bins for hours or days awaiting
processing? Leaders and managers alike should be aware of these wastes and make
appropriate decisions. What about outsourcing? Are there certain components that could be
outsourced?

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3. Next, it should be considered that supply managers can be involved with engineering
in the earliest processes of development. For example, a butterfly valve with all the various
components is being designed by engineering. Often, engineering tends to “over engineer”
and will stick rather blindly to the blueprint, designing all material unquestioningly to specs,
because their job usually doesn’t require the consideration of costs. At this point, those of us
in supply management can step in and look at material alternatives. For example, this valve
seat is specified to use a 316 stainless steel. The supply manager inquires from the buyer how
the valve will be used, and finds out that it is a standard hot water intake pipe for kitchen and
bathrooms in food production. Knowing that the temperature will not really exceed 100
degrees Celsius, the supply manager knows that a standard 304 stainless using less could be
substituted, saving money.

4. The last consideration is the overall attitude towards change that exists within your
company. If you are a manufacturer of components for combustion-engine vehicles, what is
the outlook on electric vehicles among employees? Like all new technologies and processes, it
can be difficult to accept and adapt to the electrification of transportation. Does your
company embrace this change and look for ways to capitalize on the many opportunities
afforded? Or, is there a resistance to or lack of information about what’s really going on? It’s
never a bad idea to gauge company sentiment on hot issues like emerging technology.
Training can be implemented to attempt a creative, positive, and open perspective toward
emerging markets and the inevitable challenges and opportunities that each will bring.

This last suggestion might be the first place to start! Oftentimes, tactical changes in
production, administration, and trade will be resisted by employees, and can often cause a lot
of headaches for supply management. It typically works much better to inspire suppliers with
a vision and how they provide a crucial role in that vision. Strategic and tactical cost savings
will organically flow from this internal shift!

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References
1.https://www.ifpenergiesnouvelles.com/article/nickel-energy-transition-why-it-called-devils-metal

2. https://www.forbes.com/sites/woodmackenzie/2019/07/24/can-metals-supply-keep-up-with-electric-
vehicle-demand/?sh=6ef2d65c6c9b

3.https://link.springer.com/article/10.1007/s41247-019-0056-
9#:~:text=Molybdenum%20and%20niobium%2C%20and%20sometimes,are%20produced%20in%20smaller%
20volumes. (

4.https://www.bbc.com/news/business-61148499 05/05/2022

5.https://www.forbes.com/sites/uhenergy/2022/03/31/russia-ukraine-war-helps-drive-nickel-prices-ev-
headaches/?sh=3bb9bb057cd9

6.https://en.wikipedia.org/wiki/Ferroalloy#Ferronickel

7.https://www.valvemagazine.com/articles/the-materials-that-make-up-valves

8.https://nickelinstitute.org/en/about-nickel-and-its-applications/stainless-steel/the-nickel-advantage/

9.https://aip.scitation.org/doi/10.1063/1.3552329

10.https://www.assda.asn.au/blog/262-200-series-stainless-steels-high-manganese-crmn

11.https://insg.org/index.php/about-nickel/production-usage/

12.https://nanthavictor.com/2020/07/22/nickel-demand-from-the-batteries-sector-to-account-for-over-25-
percent-of-the-total-nickel-market-by-2030/

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