Mar 04, 2021 11:51 PM

Update: The Metal That Worries Tesla Most Is Getting Much Cheaper

Battery charging status information is displayed on a dashboard screen inside a Tesla Model X sports utility vehicle
Battery charging status information is displayed on a dashboard screen inside a Tesla Model X sports utility vehicle

(Bloomberg) — Nickel tumbled after a major Chinese producer’s unexpected plan to add supply eased concerns about a structural deficit for the material that Elon Musk has said is the biggest concern for Tesla Inc. batteries.

Tsingshan Holding Group Co. Ltd., the world’s top stainless steel producer, will soon start supplying nickel matte to Chinese battery material producers and plans to expand its nickel investments in Indonesia. Matte is an intermediate product made from concentrate that can be further processed into battery-grade chemicals.

Benchmark nickel prices were trading at a six-year high as recently as last week on expectations surging demand from the electric-vehicle sector would spur a shortage. Musk said in February that nickel was Tesla’s top concern for scaling lithium-ion cell production and was behind a shift to using iron for some EV batteries instead.

Nickel is critical to the world’s clean-energy transition and previous comments from Musk have drawn attention to the possibility of a crunch. He pleaded with miners last year to produce more, promising a “giant contract” for supply produced efficiently and in an “environmentally sensitive way” amid concerns that a deficit looms as early as 2023.

Tsingshan forecast its nickel production to be 600,000 tons this year, and would boost it to 850,000 tons and 1.1 million tons for the next two years.

A report by research firm Beijing Antaike Information Development Co. Ltd. on Wednesday indicated that Tsingshan’s expansion plan is far beyond what the market expects, and said if the projects in Indonesia proceeded by the company schedule, the country’s nickel production would meet China’s demand for the metal by 2022, which would significantly squeeze the market left for Chinese domestic nickel producers.

Tsingshan’s technology enables it to switch between making materials for stainless steel or batteries through pyrometallurgy rather than hydrometallurgy. Refined nickel prices in London have dropped more than 10% in two days.

Nickel-pig-iron producers can now make nickel matte by slightly adjusting the manufacturing process, said Celia Wang, an analyst at Mysteel. This will “substantially ease” concerns of a shortage of battery materials, she said.

While the upside in nickel prices will be capped until October, when Tsingshan is set to start deliveries, the market will monitor progress as there’s the possibility of setbacks considering the new technology, Wang said.

Chinese companies have invested heavily in Indonesia, which has over one-fifth of global nickel reserves. At the beginning of 2020, the country reimposed a ban on the export of unprocessed nickel ores and concentrates in a bid to attract more investment into its local facilities. Chen Ruirui, a nickel analyst at Antaike, told Caixin the overall nickel refining capacity owned by those Chinese companies in Indonesia totals over 1 million tons, adding that new projects there are proceeding fast.

The price of nickel fell as much as 5.6% to 130,510 yuan a ton on the Shanghai Futures Exchange, dropping by the daily limit. Futures on the London Metal Exchange slumped more than 8%, extending Wednesday’s 6.7% decline. Stainless steel futures also slumped by the daily limit in Shanghai.

Lu Yutong contributed to this story.

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