Battery weakness weighs on nickel market

The outlook for the nickel market has darkened this year, reflected by a fall in benchmark nickel prices on the London Metal Exchange (LME) by a quarter to an average $17,492/t for 2024 to date, down from an average $23,743/t in 2023. While a supply glut in Indonesia has mainly driven the downturn, the market has also been pressured by a slowdown in the global electric vehicle (EV) battery market.

Demand-side fundamentals for downstream EVs have weakened significantly in Europe and the US, softening uptake of battery materials and particularly weighing on nickel-rich battery chemistries.

Nickel prices were shored up during 2022 and early 2023 by demand from battery cathode/cell and EV producers, who moved on higher demand projections, remnants of Covid-time subsidies and government policy support to boost capacities and enter into long-term supply partnerships which required them to hedge long-term nickel price exposure. Investment funds poured money into nickel as a consequence, with $20,000/t widely regarded as the new baseline price on batteries growth.

But the tide has since turned, as falling consumer demand and policy changes have driven major scale-back across the world. In Europe, market participants surveyed by Argus indicated high inflation, together with the removal of EV subsidies in Germany and alterations to incentives eligibility criteria in France as drivers for the battery-electric vehicle slowdown. And reduced federal tax benefits in the US have been most commonly cited as the driver of weak downstream demand.

The ripple effect has been felt across the European supply chain. Major European battery materials producer Umicore recently announced a €1.6bn impairment on its battery materials business while launching a strategic review of its battery materials division. Its sales of cathode active materials (CAM) in January-June were flat year-on-year, with revenues down by a third.

The group halted construction at a CAM factory in Canada, previously expected to supply German automaker BMW, as it slashed its planned 2024 capital expenditure (capex) budget from more than €800mn to a maximum of €650mn. Carmaker BMW also recently cancelled a $2bn battery cell contract with Swedish battery start-up Northvolt, choosing instead to source from South Korean producer Samsung SDI. A strategic review is planned at Northvolt, which is pondering delays to planned new gigafactories in Germany, Canada and Sweden.

Demand for batteries with nickel-rich chemistries, including NCM 811, NCA and NMCA, is expected to be 44.36mn GWh this year, down by 12pc compared with 2022, ArgusConsulting data show. This is in contrast to demand growth for non-nickel LMA and LFP batteries over the same period, which is expected to rise by 72pc to 24.43mn t, indicative of cost pressures and changes in consumer behaviour. The share of nickel-rich chemistries in Europe will fall to 27pc in 2030 from 51pc in 2023, according to Argus estimates.

Major Asian CAM and battery producers are also stopping or delaying planned ramp-ups. South Korean producer LGES now expects to use 30-35GWh of its battery capacity to take advantage of the US' Inflation Reduction Act (IRA) tax credits in 2024, about two-thirds of its earlier target of 45-50GWh. The group expects the global EV market to grow by 20pc this year, down from 36pc a year earlier, with the projected slowdown starkest in Europe and the US.

LGES has delayed ramp-ups at its joint venture battery cell facility with automakers General Motors and Stellantis, but has turned its attention to the LFP market by signing a 39GWh deal with French automaker Renault's EV division Ampere.

Since the first quarter, the Argus assessment for Cathode active material NCM811 has declined by 15pc to $29.36/kWh, with the corresponding decline to NCA cathodes registered at 15.3pc to $29.10/kWh.

The decline in high-nickel CAM and battery cell prices is set against rising upstream raw material prices in top producer Indonesia, which have tracked tighter availability of ore. Producers of key battery input nickel sulphate in Asia are battling a trend of rising prices of mixed hydroxide precipitate (MHP) and matte, finding themselves unable to pass on cost increases to CAM producers. A European market participant said the battery supply chain suffers from the use of fixed-term spot pricing, creating volatility when in fact the industry is a collective of several different inputs, including nickel, cobalt and lithium.

Tightening supply of Class 1 nickel products most commonly used in the battery value chain further threaten to raise prices, which will inevitably be inflationary for the whole market at a time when major EV producers are slashing consumer prices to enter growth markets.

By Raghav Jain