If you’re looking for a commodity that is on fire right now, nickel is it.
Prices this week posted their biggest two-day advance in five years rising as much as 6% to $13,030 per metric ton on the London Metal Exchange on Wednesday. That added to Tuesday’s 5.3% gain after Trafigura Group Pte joined Glencore Plc in unveiling bullish demand forecasts for the metal.
In Shanghai, prices surged high enough to hit the exchange’s daily limit.
“Such breakthrough has been cooking long, backed by relative value and EVs,” said Richard Fu, head of Asia Pacific at Amalgamated Metal Trading Ltd.
Nickel is a primary ingredient in the production of lithium-ion batteries, the batteries that power electric vehicles. The chief economist at Trafigura, Saad Rahim, said in an interview with Bloomberg, that we’ll see demand increase by half to 3 million tons by 2030—echoing the bullish views of miner Glencore—with batteries likely to use more nickel and less cobalt in the future.
So far in 2017, nickel is up 28% and is competing with aluminum for the title of top base metal of the year.
On Tuesday, Chinese investors piled into Shanghai futures as the morning session opened. Prices were quickly locked up by the limit just shy of 100,000 yuan per ton.
But MMC Norilsk Nickel PJSC—which competes with Vale SA as the world’s top producer—has cautioned that the market may have gotten too bullish too quickly. The company expects this year’s demand for the metal from battery production to be around 65,000 tons, compared with a total usage of 2 million tons, according to their head of analysis and market development, Anton Berlin. According to Berlin, it will still take a few years for EVs to become a significant consumer of nickel.
Even still, the market’s change of mood on nickel is remarkable considering the metal’s disastrous reputation. Nickel has long been a thorn in the side of Glencore, which was met with unprofitable operations after its takeover of Xstrata, selling a nickel mine in Australia that Xstrata had bought in 2007 for $2.4 billion for just $19 million in 2015.
“The nickel industry’s been a bit of a dog since 2007,” said Oliver Ramsbottom, a partner at McKinsey & Co. in Tokyo.
But the growth in the battery industry seems to be reviving the fortunes of the metal more than a decade after nickel collapsed from its peak of $51,600 per ton in 2007 after Indonesia and the Philippines began to flood the market with low-grade supply. Today, nickel trades at $11,870.
One reason we could see nickel prices continue to rise is that the global nickel market is heading for a supply deficit once above-ground stockpiles of battery-grade nickel are consumed, according to Wood Mackenzie. The question for miners now is just how quickly the premium for top-quality nickel will come about.
“You can see the tightness ahead in the nickel market, but my concern is that we’re going to see a lot of value destroyed along the way,” BMO Capital Markets Ltd’s Colin Hamilton, managing director for commodities research, said. “If the miners really believe in the EV growth story, the thing to do would be to keep the nice in the ground until the deficit arrives.”
And believe they should. Electric vehicles are expected to account for more than half of all new vehicles on the road globally by 2040, and several countries—including Norway, The Netherlands, India, and China—have made moves or set concrete timelines for only allowing sales of EVs in the coming years.
“Will we see a real breakout in the next 12 months?” asked Trafigura’s Saad Rahim referring to nickel. “That’s hard to see, but beyond that, structurally this looks to be going up.”