Nickel: Is it the New Lithium?

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Securing nickel will soon become a greater challenge to battery manufacturers than securing lithium

Matt Geiger | February 22, 2018 | SmallCapPower: The first lithium ion battery became commercially available in the early 1970’s. However, it was only until the past decade that lithium-ion became the preeminent battery type globally – thanks to improved technology and plunging production costs. All electric vehicles currently on the road use lithium-ion batteries and, for at least the next decade, this will remain the case.

The science behind lithium-ion technology is quite fascinating. As seen the in the below graphic provided by Battery University, each battery contains three key components: a cathode, an anode, and an electrolyte.

When the cell charges and discharges, ions shuttle between the cathode and the anode. On discharge, the anode undergoes oxidation, or loss of electrons, and the cathode sees a reduction, or a gain of electrons. Upon charging, the electrons leave the cathode and flow back to the anode. The electrolyte is the conductor that allows the electrons travel back and forth between anode and cathode.

These three components have unique material inputs. The electrolyte is commonly a lithium salt dissolved in a mixture of organic solvents. Depending on the specific battery, electrolytes can be found in a solid, liquid, or gel-like form.

Battery anodes are almost always made of graphite. Graphite comes in two forms: natural graphite from mines and synthetic graphite from petroleum coke. Both types are used for Li-ion anode material.

The most complex of these components is the cathode. There are four main cathode chemistries currently in commercial use: Li-cobalt, Li-manganese, Li-phosphate, and NMC. Material inputs include lithium, cobalt, manganese, phosphate, and/or nickel depending on the chemistry.

However, the NMC chemistry is well on its way to becoming the “King of the Cathodes.” It is the newest of the four chemistries to be put into use commercially and outperforms the others in terms of cycle life, operating temperature, and energy density. This is the type of cathode used in the vast majority of electric vehicles, as well as high performance applications such as power tools and medical devices.

The material inputs into NMC cathodes are nickel (N), manganese (M), and cobalt (C). These three metals are used together in varying proportions. The original NMC cathodes were 111, which means that there were equal quantities of nickel, manganese, and cobalt. Today 523 (5 parts nickel, 2 parts manganese, 3 parts cobalt) and 622 (6 parts nickel, 2 parts manganese, 2 parts cobalt) are the prevailing cathode chemistries in commercial use.

You may see a trend underway. As NMC cathode technology advances, each new chemistry demands more and more nickel (relative to manganese and cobalt). This trend is expected to continue – within the next two to four years, 811 chemistry is set to become the industry standard.

Battery makers are shifting towards NMC cathodes. NMC chemistry is transitioning to 811. What are the implications for raw material demand?

Paul Gait, Jonathan Absolon, and Catherine Tubb from Bernstein draw the following two conclusions in an excellent research report titled Metals & Mining: Lithium, nickel, or cobalt? Where does the electric vehicle bottleneck sit?

  1. “The first is that, under all battery chemistry scenarios (i.e. whether all batteries were NMC (111), NMC (811), or anything in between), production of lithium would not be the limiting factor; in other words, lithium never creates the raw material bottleneck.”
  2. “Whilst cobalt is the raw material bottleneck if we build NMC (111) or NMC (523) electric vehicles, any move beyond this to NMC (622) or NMC (811) suddenly leaves us severely limited by nickel supply, even under the “optimistic” supply scenarios that we analyze.” In other words, securing nickel will soon become a greater challenge to battery manufacturers than securing lithium! The general investing public has yet to recognize this, and the nickel/EV narrative is set garner significantly more attention in the coming years.

To compound matters, only 50% of global nickel production is suitable for use in batteries. As seen in the below graphic, only nickel produced from sulphide and certain limonitic laterite deposits is considered battery-grade (also referred to as “Class 1 nickel”). Ferronickel and NPI production, both of which boomed over the course of the Chinese “super cycle,” cannot be used in batteries. Investors should expect to see a bifurcation in the prices paid for Class 1 nickel versus non-battery-grade product.

It’s also worth noting that the nickel price is still down 75% from its all-time high of $24 per pound reached in 2007. This price slump has resulted in both mine shutdowns (most recently at First Quantum’s Ravensthorpe) as well as a decade of underinvestment globally in nickel exploration and development.

Given the attention already being paid to lithium and cobalt, it is my belief that the best way to invest in the electric vehicle revolution is through exposure to high-quality nickel sulphide and laterite deposits that are amenable to Class 1 nickel production. Investors need to act quickly however, as the nickel/EV narrative is gaining momentum and will soon become mainstream.

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