Nickel : Will tsingshan’sentry into battery raw materials change the bullish outlook?

Since 2007, the growing use of nickel-pig iron (from low-grade nickel laterite ore rather than high-grade nickel sulphide ore) as a cheap feedstock for stainless steel production has pushed down nickel prices. While stainless steel demand remains the dominant factor in the nickel market for the time being, there has been an underlying sense that longer term the growth in demand for class 1 nickel (needed in EV batteries) would support a bullish market. At the end of September, the world’s largest stainless steel producer, Tsingshan, announced its entry into the battery raw materials market. It plans to construct a 50-kt/yr high-pressure acid leaching plant (HPAL) at its industrial park in Indonesia, which will allow the company to produce battery grade nickel and cobalt. Making this project so noticeable is its short timeline (aims to start producing in 2019), relatively low cost (reported capex is just $700 million, lower than constructed HPAL projects with smaller annual production ) and its aim to complete the majority of processing at one site. In this piece we discuss whether the Tsingshan news is sufficient to justify a change in sentiment on the nickel market and derail the bull narrative. We do not expect Tsingshan’s entry into the HPAL space to change the market fundamentals over the next two years , although the news has increased the downside risk to our forecast. Longer term, this news is more significant. Tsingshan is likely to set the blueprint for the development of the HPAL technology. If it is successful in bringing down the costs of beneficiation of laterite ore to cost-competitive levels, we expect a swathe of companies to follow its lead.