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Surging nickel demand spurs charge to greater environmental controls, says NTree

Environmental sustainability will be the key issue when it comes to sourcing metals in the future, and blockchain will play a key role in providing proof of origin

Morgan Stanley -

Hopes that the forecast worldwide nickel shortage driven by the expansion of electric vehicle use may have been addressed by new supply deals could run into environmental issues as attention starts to focus on the sourcing sustainability of vehicle components, investment group NTree International says.

Growing use of electric vehicles is leading to concerns that the market may face a deficit in the order of 60,000 tonnes a year of nickel until at least 2027. Overall nickel demand is expected to surge from 128,000 tonnes in 2019 to 1.23mln tonnes by 2040.

Nickel makes up to 80% of electric vehicle batteries, and is set to remain a key component for the foreseeable future.

Against this backdrop, the nickel price surged almost 40% between July 2020 and February 2021, although it has since given up some ground following news that stainless steel producer Tsingshan Holding Group will supply 100,000 tonnes of nickel matte which will be convertible into additional supply of battery-grade nickel.

Given nickel matte can be processed into Class I (battery grade) nickel, it is a potential game-changing process in meeting the increased nickel demand for electric vehicle batteries.

Tsingshan has added extra steps to the traditional refining process to increase the supply of feedstock in the Class 1 nickel production process. However, while Tsingshan has demonstrated that the new technology could be financially viable, the environmental impact remains questionable.

It could yet turn out that batteries made from this new nickel matte process may not meet stringent environmental standards of electric vehicle producers.

This view is echoed by other industry commentators. Morgan Stanley warns converting nickel matte into class I Nickel “is far from green.”

Indeed, on some estimates the process produces ten times the carbon emissions of current hydrometallurgical processes.

S&P Global says the process would be the most carbon intensive mining process ever, contributing 50-to-70 tonnes of emissions per tonne of nickel mined in order to convert nickel pig iron to matte and then into the nickel sulphide used in batteries.

US and European car makers are unlikely to support the technology as they are already under pressure to cut carbon emissions.

However, with the increased nickel price and the rapidly growing EV revolution, nickel demand is unprecedented.

While the environmental costs of HPAL are still very much a concern, Socrates Economou, Trafigura’s Head of Nickel and Cobalt Trading, states that high nickel prices are necessary in order to incentivise producers to invest in cleaner technologies that could see the alternative high pressure acid leach process greatly reduce its carbon footprint.

Meanwhile greater focus will be put on the supply chain of metals, and technological solutions like blockchain are starting to be introduced to capture supply chain ESG data and traceability. By using blockchain, responsible miners and refiners can prove their ESG credentials to regulators and investors and increase pressure on the industry to improve environmental, social and governance standards. 

In this regard, the Global Palladium Fund stands out as a frontrunner. Set up by mining company Norilsk Nickel in 2016, it offers a range of metals ETCs with a strong focus on ESG. It is also the first ETC provider to use blockchain technology to record bar information into distributed ledger technology thereby providing an extra layer of security and proof of ownership to the Issuer and, in time, capture all relevant sourcing and environmental credentials of the mined metals.

“For now, the announcement of new feedstock has caused nickel to sell off over 12% since its February peak due to the anticipated dramatic increase in supply of battery-grade nickel,” said Hamad Ebrahim, Head of Research at NTree International.

“Even though this may fix the class I nickel shortage in theory, the environmental impact of such a process may mean that batteries made from matte may not meet environmental standards, essentially quashing the viability of increased supply. The introduction of new technologies such as blockchain to capture supply chain ESG data and increase pressure on producers to ensure metals are mined and refined ethically and sustainably is a very exciting development and we are proud to be working with GPF on this initiative.”

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