With a continuing emphasis being placed on the mobilisation of a green economic recovery post-pandemic, battery metals have preceded to continue their trajectory within commodity-based ETFs. An example of such an ETF is iPath® Series B Bloomberg Nickel Subindex Total Return ETN (NYSEARCA: JJC) that is up 65.8% since the low experienced in March 2020. The appetite for said commodities had previously displayed a divergent strength to the dollar, despite the S&P 500 declining by 15% in 2018. Nonetheless the Industrial Raw Materials (IRM) price index endured a contraction of approximately 8.6% in 2019 as decreasing global demand alongside stagnant Chinese growth proceeded to influence the market.
Despite this, governmental policies, which have subsequently been implemented as an indirect consequence of the pandemic outbreak, carry intentions of pursuing a more environmentally sustainable future. China is currently leading the electric vehicle (EV) agenda, having set the target to produce electric automobiles which account for approximately 20% of total new car sales by 2025. Similarly, Germany has extended subsidies on EVs for a further four years, and the United Kingdom has followed impetuses exacted by regions including Norway, India, and France in banning sales of new fossil-fuelled vehicles by 2040. As such the strategies employed by these countries have prompted the price resurgence of a variety of input metals which represent key components in forming a plethora of renewable technologies, inclusive of those associated with the EV industry. Hence, further positive tailwinds have been experienced by these metals in regard to their attractiveness as an asset class; further fiscal stimulus is expected to incite inflation, simultaneously increasing the demand for hard assets posed by these commodities.
Specifically, the element nickel, having previously been categorised as medium-sized commodity, is now leading the EV revolution. Data provided by the London Metal Exchange (LME) has seen the metal rise approximately 70% since the 18,410 USD a tonne low in March 2020. Rapid developments in the global electric vehicle industry, has seen the demand for nickel-concentrated batteries increase, as companies like Panasonic and Tesla look to avoid sourcing cobalt which is mined speculatively in the Democratic Republic of Congo. Advantages posed by increasing the composition of nickel in technologies stems from the metal’s propensity to improve the battery’s energy density, an important characteristic which would increase automobiles’ capacity to drive further without necessitating a charging point.
Despite this growth in nickel’s attractiveness within the EV sphere, only 8% of refined nickel demand stems from batteries; more than two-thirds of demand is currently associated with the stainless-steel industry. As an alloying element, nickel enhances stainless steel’s features including that of formability, ductility and weldability, whilst increasing corrosion resistance in certain applications. Nonetheless, research accumulated by consultancy CRU has suggested that batteries’ share in acquiring nickel could rise to approximately 32% by 2040.
Projects in a variety of locations, including that of Indonesia, Africa, Canada, and the US are expected to reinforce this projection. However, such heavy-scale investment could also lead to issues posed by oversupply. Indeed, the largest source of surplus is expected to be generated by Chinese-backed projects in Indonesia, which hold plans to utilise a process referred to as high-pressure acid leaching to effectively separate nickel and cobalt to meet the demands presented by an evolving EV industry. Analysts have forecasted Indonesia’s growing presence within the nickel industry, with the country being the location for the main mine of one of the largest nickel alloy establishments in the world, Tsingshan Holding Group of Wenzhou. There is, however, a level of political risk exposure which is synonymous with the region. Moreover, a number of these projects are expected to dump mine waste produced through the extraction of nickel into the surrounding seas which are renowned for their biodiversity and coral reefs. Such actions would seriously undermine the proposition of selling environmentally-products and could subsequently deter companies from sourcing nickel if issues surrounding disposal are not effectively eradicated.
Furthermore, copper has also witnessed a surge in its pricing as a result of the increase in the volume of sustainable energy projects, with the metal reaching a price of 8,000 USD per tonne which had not been witnessed since 2013. Copper’s relevance is underpinned by its importance in forming wired components that are critical in electric vehicle combustion engines, alongside solar panels, and wind farms that, according to industry estimates, require as much as five times more wiring than the fossil fuel power generation. The origin of the mechanism driving the price of copper to great heights is not too dissimilar to that of nickel; Chinese President Xi Jinping’s commitment to approximately tripling wind and solar capacity from 2019 levels over the course of the next decade has enabled analysts to predict that the shift in copper demand will remain steadfast. In fact, analysts at Trafigura are forecasting an estimate of a near 800,000 tonnes increase in copper demand within Chinese borders in 2021, as Beijing invests capital within its grid and the long-term viability of renewable power. Equally, this demand is reflected within Europe as an abundance of countries look to successfully introduce renewable energy instruments that will ultimately require a large proportion of copper within their infrastructure.
Despite signs pointing to a ‘green recovery’, which has prompted the rally of a variety of input metals, the growth in demand should be met with trepidation. Risks to supply outlook and the partially damaging repercussions posed by ineffective dumping of waste leads to questions surrounding the materials’ viability to forge environmentally sustainable solutions. Even more so, the duration of these rallies will hinge directly on the realisation of consumer demand for renewable technologies – the volatility of such is a factor to consider when projecting the long-term viability of investing within funds centred on battery metals.
By Sasha Reed
Sector Head: Daniel Aliwell