Steep levies on Russian aluminium could threaten U.S. nickel supply

2022.02.23

Weeks of failed diplomacy over a potential invasion of Ukraine resulted in Russian federation’s determination, over the weekend, to recognize the independence of two Russia-backed breakaway separatist areas in Eastern Ukraine’due south Donbas region.

Vladimir Putin alleged the self-proclaimed People’s Republics of Donetsk and Luhansk independent, prompting sanctions from Western countries including the United States and Deutschland, which halted the approval of a major gas pipeline from Russian federation. (Putin’s timing was not coincidental, coming immediately post-obit the conclusion of the 2022 Winter Olympics in Beijing, People’s republic of china, a Russian marry)

Equally Kyiv and its Western partners look to see whether Russian forces inbound Donetsk and Luhansk will attempt to intermission through Ukrainian positions, Germany reportedly put the under-structure Nord Stream 2 pipeline on hold. The threat of Moscow withholding gas supplies to Europe in retaliation saw European union gas futures surge 8%, to around €80 per megawatt-hr. The trading bloc has become increasingly reliant on Russian gas for electricity generation, industrial usage and dwelling heating, importing over eighty% in 2020 compared to 65% a decade earlier.

Meanwhile the European union imposed sanctions on members of Russia’due south Duma (parliament), and agreed to a ban on the purchase of Russian government bonds.

The U.s. for several weeks has been threatening sanctions on Russia should information technology exercise its territorial ambitions on Ukraine, and on Monday morning time President Joe Biden made adept on that threat, past issuing an executive lodge banning “new investment, trade, and financing by U.S. persons to, from, or in the so-called DNR and LNR regions of Ukraine.”

The latest update by the Wall Street Journal had Biden saying his administration will levy sanctions on ii Russian financial institutions, its sovereign debt and aristocracy individuals. Some US lawmakers are calling for harsher sanctions. Senate Minority Leader Mitch McConnell said any path forrad should ensure that the Nord Stream 2 pipeline “not be immune to always proceed” and that Moscow should be fabricated to pay a far heavier price than it did for previous invasions of Georgia and Ukraine.

(On 12 September 2014, the Us imposed sanctions on Russia’s largest bank (Sberbank), a major arms maker and arctic (Rostec), deepwater and shale exploration by its biggest oil companies (Gazprom, Gazprom Neft, Lukoil, Surgutneftegas and Rosneft —
Wikipedia)

As The states and European retaliation for what they consider to be an act of aggression against Russian federation’s pro-Western, democratic neighbor continues to solidify, prices are soaring on a number of key metals that Russia supplies.

Commodities vulnerable to sanctions

While Russian metal producers have for the most part escaped Western sanctions, an exception is Rusal. The world’s largest aluminum producer outside Communist china was included amid a set up of sanctions imposed past the United States betwixt Apr 2018 and early on 2019. Rusal last year mined near 3.8 million tons of the lightweight metallic, about 6% of world production. The aluminum market is running depression on supplies, causing prices to near a 13-year loftier earlier this month.

“Bullish factors include power costs having spiked due to wintertime and Russia capping gas supply, which in turn had prompted product cuts leading to supply shortages,” Liberum caput of commodities strategy Tom Prices told S&P Global Platts.

Nickel is similarly undersupplied. It jumped to an 11-yr high of $25,000 a ton, Monday, on fears of dwindling supplies that are already at a low level.

The base of operations metallic used in stainless steel and lithium-ion battery cathodes advanced every bit much as 3.2% to $25,135/t. ($11.xl/lb). According to Bloomberg
information technology’s the tiptop performer on the London Metal Exchange this year, climbing amongst a wave of forecasts that supply volition autumn short of rapidly growing demand from the electric-vehicle industry.

The nickel market’s tight fundamentals are reflected in warehouse inventories which have dropped to their lowest since 2019. Nickel is now in “steep backwardation,” referring to a status when spot prices are much higher than futures. So far prices are up eighteen% in 2022.

Russia is the third largest nickel producer in the world, backside only Republic of indonesia and the Phillipines. In 2021 it mined 250,000 tonnes, including 193,006t from Nornickel, the globe’south superlative producer of refined nickel. Norilsk Nickel’s output amounts to around 7% of global mine production, which in 2021 was 2.seven million tonnes, according to the USGS.

Other metals likely to experience the effects of Western sanctions on Russia, whether or not they are targeted straight, include copper, cobalt, gilt, palladium and platinum.

The USGS says Russian federation produced 920,000 tonnes of refined copper last year, about three.5% of the world total. Close to half, 406,841t, was mined past Nornickel, with UMMC and Russian Copper Visitor being the other two main producers.

Nearly three-quarters of the globe’s cobalt is mined in the Democratic Republic of Congo (DRC), with China having a lock on the refining of the metal used in EV battery cathodes. While far behind the DRC’s 170,000 tonnes produced terminal year, Russia’s 7,600t of mined cobalt puts it in second place, accounting for more than four% of the world full.

Nornickel is the largest cobalt producer in Russian federation, the globe’s biggest producer of palladium, and a major miner of platinum. Last yr it produced two.half dozen meg ounces of palladium or xl% of global mine production, and x% of world platinum production or 641,000 ounces.

Russia isn’t acme of mind when it comes to gold mining, merely the country is the third largest producer following Commonwealth of australia and China. According to the Globe Gold Council, in 2021 Russian gilded production amounted to iii,500 tonnes, including output from Polyus and Polymetal.

Russia also produced 76 1000000 tonnes of steel last year, well-nigh 5% of the world’southward full, and a big percent of its diamonds. State-controlled Alrosa is the planet’s largest producer of rough diamonds. In 2021 it mined 32.iv meg carats, about xxx% of the globe total, exporting mostly to Kingdom of belgium, India and the United Arab Emirates (UAE).

Across metals, Russian federation is a huge producer of potash, phosphate and nitrogen used in fertilizers, representing more than than 50 million tonnes, or thirteen% of global annual fertilizer output.

Finally, Russia is the world’s largest wheat exporter, producing 76 one thousand thousand tonnes terminal year with Turkey and Arab republic of egypt amongst its main buyers. Reuters reports the Usa Department of Agronomics expects Russian federation to export 35 one thousand thousand tonnes of wheat in the July-June season, 17% of the global total.

Wheat exports are particularly at risk of supply disruptions resulting from a conflict between Russia and Ukraine. A state of war could bear on commercial shipping in the Black Ocean, the primary wheat export road of the two countries.

Sulfide nickel importance

A disruption to nickel supplies would non simply harm nickel end users, but the unabridged lithium-ion battery supply chain because  Nornickel mines sulfide nickel, the kind of nickel best suited to lithium-ion batteries.

To digress briefly: what’s important is the type of nickel needed to make batteries.

Producing nickel-rich battery cathodes requires high-purity nickel, in the form of nickel sulfate, derived from ‘Class 1’ nickel sulfide deposits. This nickel tin can exist processed at relatively low cost, and with minimal waste product, using a unproblematic flotation technique.

Nonetheless, in that location is a problem, in that the bulk of today’southward nickel production is nickel pig atomic number 26 (NPI) used in steelmaking (as well known as ferro-nickel), which is sick-suited for making bombardment-form nickel.

Some other trouble is the rarity of nickel sulfide deposits. Nickel deposits come in two forms: sulfide or laterite. Most lx% of the world’due south known nickel resource are laterites, which tend to be in the southern hemisphere. The remaining 40% are sulfide deposits.

Existing sulfide mines are becoming depleted, and nickel miners are having to become to the lower-quality, but more expensive to process, also as more than polluting nickel laterites such as found in the Philippines, Indonesia and New Caledonia.

In Indonesia, nickel is produced from laterite ores using the environmentally damaging HPAL technique. The reward of HPAL is its ability to process low-course nickel laterite ores, to recover nickel and cobalt. Still, HPAL employs sulfuric acrid, and it comes with the cost, environmental bear upon and hassle of disposing the magnesium sulfate effluent waste. The Indonesian authorities only recently banned the practice of dumping tailings into the ocean for new smelting operations, and information technology isn’t nonetheless a permanent ban.

Chinese nickel squealer iron producers in Republic of indonesia now are looking to make nickel matte, from which to plough laterite nickel into bombardment-grade nickel for EVs. The process however is highly energy-intensive and polluting, also equally far more costly than a nickel sulfide operation (upward to $v,000 per tonne more).

According to consultancy Wood Mackenzie, the extra pyrometallurgical pace required to brand battery-grade nickel from matte will add to the energy intensity of nickel pig iron (NPI) production, which is already the highest in the nickel industry. We are talking 40 to 90 tonnes of CO2 equivalent per tonne of nickel for NPI, versus under 40 CO2e/t for HPAL and less than 10 CO2e/t for traditional nickel sulfide processing. Read more

Electrification demand

While only 10% of the world’s nickel currently ends up in the battery supply chain, the growth in EV demand is expected to transform the marketplace.

Bank of America forecasts that 690,000 tonnes of nickel volition be needed by 2025, based on its estimate of 13.6 million EVs sold that year. That represents more than than the combined nickel supply of Russian federation and the Philippines, which in 2021 outputted 620,000 tonnes, out of the 2.7Mt total.

If we accept that number out and use information technology to EVs, the mining manufacture has to notice another 690,000 tonnes to supply all of nickel’south other uses, the primary one existence stainless steel.

Nickel sulfate pulverisation made from nickel sulfide ore, is a crucial ingredient in cathode conception for lithium-ion batteries needed to propel electric vehicles.

Nickel is pop with EV battery-makers because information technology provides the energy density that gives the battery its ability and range. Increasing the corporeality of nickel in a battery cathode ups its ability and range.

Recent data from Adamas Intelligence shows global EV sales nearly doubling year on yr in 2021, i.e., growing by 83%. The record 286.2 gigawatt hours of battery chapters deployed in rider vehicles represented a 113% leap over 2020.

Information technology’s important to note that over half of that bombardment chapters (54%) was powered past high-nickel cathode chemistries, referring to NCM half dozen-, vii- and 8-serial (nickel-cobalt-manganese), nickel-cobalt-aluminum (NCA) and nickel-cobalt-manganese-aluminum (NCMA). Depression-nickel chemistries merely amounted to 26% and no-nickel batteries were merely xx%.

According to Adamas, high-nickel battery chemistries were nigh prevalent in Northward America, used by manufacturers such as Tesla, VW, Ford, Hyundai and others.

Reuters noted in a contempo piece that
The EV revolution seems to be fast approaching a state of critical mass, which is translating into tape-breaking price runs for cathode inputs such as nickel and cobalt and, of course, lithium itself.

Again it comes downward to supply, with Class 1 nickel containing a minimum 99.eight% metal. That’southward why there is such a scramble for battery-grade nickel, and why the amount stored in LME and Shanghai Futures Exchange warehouses is then low.

Reuters reports Shanghai nickel inventories accept been running on empty for months and are currently sitting at but 5,301 tonnes. LME nickel stocks are currently at 83,274 tonnes, of which just over half has been canceled. This compares to 295,000 tonnes of nickel last year.

Columnist Andy Home notes that the nickel being mined and processed in Indonesia “isn’t going to go anywhere near an exchange warehouse” because it’s in the wrong course to qualify for exchange delivery. Moreover, because nearly nickel produced in Indonesia is by Chinese companies, “supply will ultimately be channeled to Chinese battery makers to meet domestic need.” Translation: this nickel won’t become into metal commutation warehouses, it volition go directly to China.

With so little battery-grade nickel available to the market, it seems the supply-demand imbalance problem is unlikely to be solved, specially as demand keeps building.

Consider: global carmakers have committed to spending merely over half a trillion dollars on EVs and batteries, motivated past an added sense of urgency past many countries to do more to combat climate alter, and looming carbon mandates in major cities such as London and Paris.

The $515 billion in auto-manufacture EV commitments made last year is nearly double the $225 billion on capital expenditures and R&D in 2020, according to AlixPartners.

Mercedes-Benz is latest major automaker to upwards its zero-emissions game, announcing that by 2025, all-electrical and hybrid vehicles are expected to make up 50% of sales. The luxury automobile company also expects to take factories exclusively producing electric vehicles by the end of the decade, with some product lines switching over even sooner. Mercedes plans to launch production of its EQE model in Germany after this year.

The bullish marketplace forces swirling in training for what many are calling the side by side commodities supercycle, driven by so-called “green economy” metals, is splendid news for companies on the hunt for raw materials to feed these new technologies.

Palladium One Mining

In Canada, the largest nickel deposits are found in the Thompson Nickel Belt in Manitoba, Ontario’s Sudbury Basin and the Ungava Peninsula in Quebec. Like Sudbury, Vale’south Voisey’s Bay operation in Labrador has long been ane of the biggest nickel producers globally.

One projection resembling Voisey’southward Bay-mode nickel-copper-PGE mineralization is the Tyko project near Marathon, Ontario, being developed past Palladium 1 (TSXV:PDM, FSE:7N11, OTC: NKORF).

Palladium One continues to outline a loftier-grade nickel-copper system, where a 2d-phase drill program in 2021 and an announced expansion increases Tyko by over a fifth.

At PDM’s Tyko, its main metals are nickel and copper, while at its LK project in Finland, PDM is exploring for palladium, platinum, nickel, copper and cobalt.

Combined, Tyko and LK offer investors almost equal exposure to bombardment metals and precious metals — the latter in the class of platinum and palladium. Note: precious metals refers to palladium, platinum and gold.

In Finland, months of drilling success on Palladium One’s Läntinen Koillismaa (LK) PGE-Cu-Ni property have culminated in a much-increased resources endowment, further confirming the project’s potential to host a big majority-tonnage deposit.

Renforth Resources

Also looking to benefit from the make clean free energy era is Renforth Resources (CSE:RFR, OTCQB:RFHRF, FSE:9RR) which holds a district-scale battery metals prospect at its Surimeau project in Quebec.

This 260 foursquare-kilometer property hosts several target areas for industrial metals (nickel, copper, zinc, cobalt), located south of the Cadillac Pause, a major regional gold structure.

Exploration focus is currently on the sulfide nickel-rich VMS targets, in particular the Victoria West prospect, which has been the site of drilling for over a year.

According to Renforth, information gleaned from drilling and trenching the Victoria West target, along with surface sampling, creates an area of involvement that includes about 5 km of strike on the western end of a xx-km magnetic anomaly.

The company interprets this bibelot to be a nickel-bearing ultramafic sequence unit, which occurs alongside, and is intermingled with, VMS-fashion copper-zinc mineralization.

Direction considers the way of mineralization to be an “Outokumpu-like” occurrence, referring to a district in eastern Finland known for several anarchistic sulfide deposits with economic grades of copper, zinc, nickel, cobalt, argent and gilded.

Conclusion

Nickel and other metals supplied past Russian federation, such as palladium and cobalt, are currently under supply pressure.

A string of annual deficits starting in 2018, combined with higher sales of gasoline vs diesel units, culminated in palladium’southward celebrated $2,830 per ounce in May, 2021. While prices have since softened, a rebound in auto production this year should create upside for palladium, Morgan Stanley said in a 2021 year-cease note.

If Russian mining companies enter the cross-hairs of Western sanctions, it volition only worsen the supply-demand imbalance.

Meanwhile the need force per unit area on these metals continues to build, boding well not only for their prices, merely companies similar Palladium I and Renforth that are unlocking deposits that will help supply a green-energy and transportation future.

Palladium 1 Mining

TSXV:PDM, OTC:NKORF, FSE:7N11
Cdn$0.19, 2022.02.22
Shares Outstanding 248m
Market place cap Cdn$48.6m
PDM website

Renforth Resources

CSE:RFR, OTCQB:RFHRF, FSE:9RR
Cdn$0.065; 2022.02.22
Shares Outstanding 262.3m
Market cap Cdn$17.0m
RFR website

Richard (Rick) Mills
aheadoftheherd.com
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