Concerns over intense sanctions on Russia's economy have caused large disruptions in commodities markets
Russia is the third-largest producer of nickel in the world. The resulting sanctions from Putin’s “special operation” in Ukraine have shook global markets including nickel which has soared to record highs above 101,000 USD per metric ton. The London Metal Exchange consequently halted trading on nickel for the rest of the day Tuesday. Russian markets themselves have been closed during the conflict.
Huge nickel price spike
Rising battery input prices have already pushed up the cost of nickel-manganese-cobalt batteries by 124% over the past 12 months, according to Alice Yu of S&P Global Market Intelligence. Any sanctions on Russia and their mineral mammoth Norilsk Nickel could result in a surge in input costs for EV makers and other battery dependent industries. The result would be a blunted bottomline or a hike in prices for companies. Morgan Stanley estimated that the surge in nickel prices could add 1,000 USD to the input cost of an average electric vehicle. Further hikes in Lithium, cobalt, graphite, and other critical materials, threaten the cost parity timeline between EVs and ICEs. Global sales of EVs rose 106.8% in 2021 according to S&P Global Market Intelligence.
In addition to the risks in battery inputs, an ongoing shortage of semiconductors and high energy input costs threaten the ability for automakers to meet their ambitious goals to transition and compete with Tesla. Tesla’s Elon Musk in March of 2021 agreed to partner with a nickel mine in New Caledonia in an effort to secure more of the resource, which is key in the production of lithium-ion batteries, Reuters reported. Tesla serves as an industrial adviser to the Pacific island's Goro mine and will help with product and sustainability standards. The mine is owned by Brazilian mining giant Vale, the world’s second-biggest nickel mining company by production. The French overseas territory of New Caledonia is the world's fourth-largest nickel producer. Musk had tweeted last year, well before the Ukraine conflict, that "Nickel is our biggest concern for scaling lithium-ion cell production." Gregory Miller, an analyst at Benchmark Mineral Intelligence believes that this year could mark the first year-over-year increase in the average price of lithium-ion battery cells.
Effect on China and the globe
If there’s further uncertainty or concrete disruptions in battery input supply chains, China, which has declined to criticize the invasion, could become one of the only buyers of Russian metals, giving its EV makers a price advantage in battery production. According to the IEA, China’s market share of refining is around 35% for nickel and 50-70% for lithium and cobalt. MCC-JJJ Mining Development Company of China is also the tenth-largest nickel mining company by production according to Yahoo Finance. The nation’s mineral supply chain presence could benefit their domestic EV firms who will be first in line to access these minerals though likely at a higher cost amid global uncertainty.
The situation is ongoing and there is the chance that agreements are reached between the west and Russia to free up these critical commodities. Many can probably argue that the damage has been done in the situation could further escalate. Adam Jonas of Morgan Stanley has said that “This is not a question of capital near term… no amount of capital can create new Nickel mines by 2024.” Once the dust settles, investors can reassess the new market conditions and what kind of progress can really be made in the transition to EVs. Ultimately, BYD, NIO, and other domestic Chinese EV manufacturers should handle this supply crisis better than outside competitors with Tesla being the exception.