There appears to be a storm brewing in the nickel and cobalt markets which, if not addressed successfully by policy makers may become an almighty spanner in the decarbonisation works of the United States and of course like any good butterfly effect worth its salt, could have a major impact on the global markets.
With demand continuing to soar for electric vehicles in the United States on the back of the Biden administration’s Inflation Reduction Act (IRA), it would appear a good example where forward-thinking public policy has helped drive consumer’s decisions to reach a desired endpoint.
However, the public policy wonks may be forced to confront another dilemma should they wish for the American automakers to continue to pump out electric cars with the same enthusiasm.
With the IRA criteria demanding elements be sourced domestically or from countries with a Free Trade Agreement in order to receive the appropriate tax concession, the question that is starting to be asked is: What happens when there simply isn’t enough product coming from such countries?
Last week Benchmark Mineral Intelligence predicted that by 2030 only eight per cent of the world’s cobalt supply is likely to receive the tick from the gatekeepers at the IRA. This is largely due to the Democratic Republic of Congo controlling 70 per cent of the world’s current supply and 50 per cent of global reserves.
The song sounds familiar in nickel as well, with only 13 per cent of nickel supply likely to pass muster.
Benchmark’s number crunchers believe that by 2035, 67 per cent of global nickel supply will come from Indonesia.
Global juggernaut China itself is also reliant on feedstock from Australia’s northern neighbour, who changed the game when they banned exports of nickel ore in 2020.
A quick look at the numbers exposes the problem. Without a change to the status quo and the current supply chains (ie trade deals with Indonesia and the DRC) the United States is unlikely to be able to hit their targets.
Of course, if the three letters IRA cause a few conundrums then so do E, S and G.
With the artisanal mining practices of the DRC and deforestation, pollution and safety issues abounding in Indonesia, this is something policy makers and battery manufacturers need to get in front of, given the growing scrutiny from consumers on supply chain sustainability credentials.
But back to the butterfly effect.
The predicted squeeze on global supply by 2030 only tightens the vice of IRA compliance and it appears likely that nickel and cobalt producers in countries such as Australia, Canada, Brazil and Europe stand to benefit the most from the American policy.
Any sort of premium which might be attached to product coming out of these countries and regions will only increase their attractiveness to investors.
However, policy makers in those jurisdictions can’t think that they can simply sit back with their feet on the desk and watch the money roll in. They need to ensure that the right policy frameworks are in place to encourage greater investment which can cut down the time to go from mine to market.
The landscape of battery metals appears to be ever changing and the impact of political decisions, like those made in the US and Indonesia prove that actions taken within national borders can have major global implications.
Keep calm and carry on.
White Noise communications is provided a fee for service working with companies which may have exposure to commodities or securities mentioned in these articles. All articles are the opinion of the author and are not endorsed by, or written in collaboration with, our clients.
Photo by Mark Chan
