In recent years, the global transition towards clean energy has stretched the need for metals even further.
Recent data from Chile’s statistics bureau shows that the nation’s copper output tumbled 15% in January from December, and 7.5% from January 2021, after weak performances from some of its biggest mines.
At just under 430,000 tonnes, Chile’s January copper output represents its lowest monthly output since 2011, a sign of what’s to come in the copper market and a harbinger of declining mine production.
While no clear reason was given for Chile’s production drop, it’s safe to assume that copper mines are indeed running out of ore.
As AOTH have written before, reserves at copper mines are dwindling worldwide, and so are the grades.
Making matters worse, after more than a decade of drought, freshwater supplies are becoming a big problem in Chile.
While the constitution still has several hurdles to overcome, the idea itself has already started to cause jitters and make miners nervous about their Chilean operations.
The war in Ukraine has lit a fire under commodities and none is hotter than nickel.
The largest-ever price move on the LME began shortly after the US considered banning Russian crude oil imports.
Nickel’s vertical price spike is seen in Kitco’s graph below.
Traders, miners and processors will often short metals as a hedge for their physical stocks, thinking that any volatility in the exchange position and physical stocks should cancel each other out.
On Monday, following a near doubling of the nickel price, the LME announced rule changes allowing traders to defer their contract obligations.
Bloomberg said Xiang held a large short position on the LME through Tsingshan, which has been under growing pressure from its brokers to meet margin calls.
One of these brokers, a unit of China Construction Bank, was given more time by the LME to pay the hundreds of millions of dollars worth of margin calls it missed Monday.
Russia is the third largest nickel producer in the world, in 2021 mining 250,000 tonnes, including 193,006 from Nornickel, the globe’s top producer of refined nickel.
Note that Nornickel mines sulfide nickel, the kind best suited to lithium-ion batteries.
A more conservative estimate from Rystad Energy shows that demand for high-grade nickel used in EV batteries will outstrip supply by 2024.
Wood Mackenzie estimates that of the 2.8 million tonnes demanded last year, 69% was used to make stainless steel and 11% to make batteries, up from 71% and 7% respectively in 2020.
According to Rystad’s latest report, nickel demand from the stainless steel industry should grow at about 5% per year, while the market for batteries is poised to explode.
We’re already seeing reserves dwindle at the biggest mines, with lower ore grades each year.
While getting 1Mtpa of additional output is difficult to achieve, finding the right investments in projects leading to copper discoveries would help to close the supply gap.
And while some may sniff at the fact that Russia is only the third-largest nickel producer, behind Indonesia and the Philippines, Nornickel mines 7% of the world’s sulfide nickel, of which less than half is in sulfide nickel deposits.
However we must also keep in mind, that even though battery chemistries could change, the metals essential to lithum-ion technology will still be required.