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Mark O' Donnell
 · 
Research Analyst
March 30, 2022
 · 

Will chaos in nickel prices disrupt the EV boom?

The nickel market has been in disarray in recent weeks as prices soared to unprecedented levels before going on a freefall amid supply concerns and an unexpected short-squeeze by one of the world’s largest steelmakers.

Nickel is one of the most common metal elements in the world used to make stainless steel, batteries, coins, and other metal applications.

How the Russia-Ukraine conflict drove nickel prices higher

Russia is one of the world’s largest producers of nickel, supplying about 20% of class 1 nickel that is mainly used in the production of stainless steel and electric vehicle batteries. Data from market research firm Statista showed that Russia was the world’s leading exporter of nickel and nickel products in 2020, shipping about $3.02 billion worth of the commodity.

The conflict between Russia and Ukraine sparked fears of a nickel supply crunch as Russia has been hit with a number of economic sanctions and as importers of other Russian commodities like oil avoid being impacted by sanctions.

The short-squeeze that sent prices skyrocketing

In addition to the supply concerns induced by the ongoing Ukraine conflict, a short-squeeze involving Tsingshan Holding Group, touted as the largest nickel producer in the world, was also behind soaring nickel prices.

The Chinese company took a nickel short position of 200,000 tons of nickel in the London Metal Exchange (LME) and as the price of nickel surged in the early days of the Ukraine crisis, the company’s short position was left in disarray, setting it up for a paper loss of about $8 billion.

Tsingshan recently inked a deal with banks to avoid further margin calls, buying it time to cut its nickel position as markets stabilize.

LME forced to halt trading

The short-squeeze and supply concerns sent nickel prices skyrocketing by more than 50% to $100,000 per tonne on March 8, significantly up from about $25,000 per tonne a week earlier.

The surge prompted the LME to suspend nickel trading and impose price limits to maintain stability.

Since the trade resumption, prices have been on a freefall over low trading volumes and concerns about the status of Tsingshan’s short position. The benchmark three-month nickel on the LME fell 2.2% on Tuesday at 10:30 a.m. GMT to $32,000 per tonne.

Nickel D1

What the volatility in nickel prices could mean for EV makers

Higher nickel prices could drive up the costs of electric vehicles even higher as nickel is one of the key materials used to produce EV batteries. Morgan Stanley auto analyst Adam Jonas had recently warned that EVs in the US could be $1,000 more expensive as nickel prices soar.

This could hurt electric carmakers’ profit margins and impede the growth of the burgeoning EV market at a time when markets like China, Europe, and the US transition to new-energy vehicles.

The shortage in nickel and skyrocketing prices of the metal have forced some EV makers like Tesla (NASDAQ:TSLA) to look for other battery materials. In late February, Tesla CEO Elon Musk tweeted that the Silicon Valley-based company’s biggest concern for scaling lithium-ion cell production is nickel.

“That’s why we are shifting standard range cars to an iron cathode,” Musk said. Tesla recently hiked the prices of its Model 3 and Model Y cars in the US and China, the world’s biggest car market, due to high raw material prices.

Its rivals in China including XPeng (NYSE:XPEV), Li Auto (NASDAQ:LI) and BYD (HKG:1211) also announced price hikes to counter rising raw material costs. However, NIO (NYSE:NIO), another local player, last week said it has no plans to raise prices at the moment after its sales have lagged behind its rivals XPeng and Li Auto for five straight months.

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