Electric car sales could be hit by Ukraine war

Russia’s invasion of Ukraine has shaken the global nickel market as the metal gains importance as a component of electric car batteries, raising fears that high prices could delay the transition from fossil fuels.

The nickel price doubled in one day last week, prompting the London Metal Exchange (LME) to freeze trading and effectively bring the global nickel market to a standstill.

After two years of supply chain chaos caused by the pandemic, the episode provided further evidence of how geopolitical tensions are destroying business relationships that companies took for granted, forcing them to rethink where they source the parts and metals they use to make cars. and many other products.

Automakers and other companies that use nickel, as well as other battery raw materials such as lithium or cobalt, have started looking for ways to protect themselves from future shocks.

Volkswagen, for example, has begun exploring buying nickel directly from miners, Markus Duesmann, CEO of the automaker’s Audi division, said in an interview Thursday. “Raw materials will be an issue for years to come,” he said.

The prospect of enduring geopolitical tensions is likely to accelerate attempts by the United States and Europe to develop domestic supplies of commodities that often come from Russia. There are nickel deposits, for example, in Canada, Greenland and even Minnesota (northern USA).

“Nickel, cobalt, platinum, palladium and copper – we have already realized that we need these metals for the green transition, to mitigate climate change,” said Bo Stensgaard, CEO of Bluejay Mining, which is working on mining nickel at a site in the west. of Greenland, in a venture with KoBold Metals, whose sponsors include Jeff Bezos and Bill Gates.

“When you look at the geopolitical developments with Ukraine and Russia, it becomes even more obvious that there are supply risks for these metals.”

An electric car battery contains about 36 kilograms of nickel

But establishing new mining operations will likely take years, even decades, given the time needed to acquire permits and financing. Meanwhile, companies that use nickel – a group that includes steelmakers – will have to face higher prices, which will then be felt by consumers.

An average electric car battery contains about 36 kilograms of nickel. The March price increase will more than double the cost of that nickel, to US$1,750 per car, according to estimates by trading company Cantor Fitzgerald.

Russia accounts for a relatively small proportion of the world’s nickel production, and most of it is used to make stainless steel, not car batteries. But the country occupies a prominent role in the nickel markets.

Norilsk Nickel, also known as Nornickel, is the world’s largest producer, with extensive operations in Siberia. Its owner, Vladimir Potanin, is one of the richest people in Russia. Norilsk is among a small number of companies authorized to sell a special form of nickel on the LME, which concentrates all nickel trading.

Unlike other oligarchs, Potanin has not been sanctioned, and the United States and Europe have not tried to block nickel exports, a move that would harm their economies as well as Russia’s. The prospect that Russian nickel might be cut off from world markets was enough to cause panic.

Analysts expect prices to fall from their recent highs but remain much higher than a year ago. “The trend would be to drop to a level close to where we left off last time”, around US$25,000 per metric ton (R$126,000), compared to the peak of US$100,000 per ton (R$500,000). ), said Adrian Gardner, lead nickel analyst at research firm Wood Mackenzie.

Nickel was already on the rise before the Russian invasion, with hedge funds and other investors betting on rising demand for electric vehicles. The price has reached $20,000 a ton this year, after hovering between $10,000 and $15,000 a ton for much of the past five years. At the same time, less nickel was being produced because of the pandemic.

After Russia invaded Ukraine in late February, the price rose above $30,000 in just over a week. Then came the 8th of March. Word spread around the trading desks of brokerages and hedge funds in London that a company, which turned out to be China’s Tsingshan Holding Group, had placed a big bet on the falling nickel price. When it rose, Tsingshan owed billions of dollars, a situation known on Wall Street as the “short squeeze.”

The price soared to just over US$100,000 a tonne, threatening the existence of many other companies that gambled wrong and leading the LME to suspend negotiations.

The exchange tried to restart nickel trading twice this week with new price caps, but sudden drops brought trading to a halt again. “The market is broken,” said Keith Wildie, head of trading at London-based metals firm Romco.

The conflict in Ukraine underscored the urgency of moving away from fossil fuels, Duesmann said. Russian oil plays a much bigger role in the global economy than Russian nickel. “It would be very shortsighted to say, ‘Electromobility doesn’t work,'” he said.

In addition to the immediate interruption in supply, automakers are concerned about a retreat from open markets that have been very good for business. Katrin Kamin, a trade expert at the Kiel Institute for the World Economy in Germany, noted that global trade has held up remarkably well during the pandemic.

“Perhaps we should talk less about the crisis of globalization and more about the downturn in international relations,” Kamin said by email.

But the conflict in Ukraine “is a huge blow to trade,” she added.

Translated by Luiz Roberto M. Gonçalves