Analysis: How can China cope with skyrocketing nickel prices?
By Wang Xin
The London Metal Exchange halts nickel trading after its prices surging over $100,000 per tonne, March 8, 2022. /CFP

The London Metal Exchange halts nickel trading after its prices surging over $100,000 per tonne, March 8, 2022. /CFP

Editor's note: Wang Xin, PhD., is a postdoctoral researcher at Zhejiang University Academy of International Strategy and Law, Guanghua Law School, Zhejiang University. The article reflects the author's opinions and not necessarily the views of CGTN.

The recent skyrocketing prices of nickel is another turn of the screw on international society, forcing the London Metal Exchange (LME) to suspend nickel trading on Tuesday, which -as of Friday - has not yet resumed. 

China's Shanghai Futures Exchange also announced a one-day suspension of some nickel trading on Wednesday.

Factors driving up nickel's prices

The first factor is the Russia-Ukraine military conflict. 

Nickel is frequently used for producing stainless steel and in the military, due to its nature of slowly oxidizing in the air at room temperature and being corrosion-resistant.

Russia is the world's third-largest nickel-producing country and a major exporter, with the global first refined nickel producer Norilsk Nickel.

Although Russia accounts for only 9 percent of the global supply of Class 2 nickel, which contains less than 99.8 percent nickel, the country's export has an major impact on LME-traded Class 1 nickel, which contains a minimum of 99.8 percent nickel.

Class 1 nickel, typically in the form of nickel sulfate, is an essential material for producing lithium-ion batteries in electric vehicles (EVs).

Secondly, increasing demand for EV batteries that utilize nickel-rich cathodes are pushing up nickel's demand. 

The current demand for the nickel utilized in EV lithium-ion batteries is 5 percent, but many market research firms indicate that the share will climb to 30 percent by 2040.

Although some other materials such as iron may replace nickel in manufacturing, the alternatives cannot achieve identical performance with nickel due to technical problems.

Before the outbreak of COVID-19, the EV sector had already expected a global shortage of EV battery minerals including nickel due to underinvestment in the mining sector.

The enduring COVID-19 pandemic may also affect the supply. For example, the Philippines, the world's second-largest nickel-producing country, once halted nickel mining to contain the pandemic in 2020.

The third factor is those barriers to acquiring nickel.

On the one hand, nickel-producing countries impose export controls on nickel owing to the pursuit of national policy objectives, or military and civilian applications of nickel. 

For example, Indonesia, the world's largest nickel-producing country, imposes an export ban on unprocessed nickel ore by legislation to support the domestic "downstream" industry.

Nevertheless, the export ban is not necessarily inconsistent with a country's obligations under the disciplines of the World Trade Organization (WTO): Article XI:2 and Article XX(g) of the GATT 1994 may serve as the justifications.

On the other hand, countries halt nickel mining due to environmental concerns; otherwise, producers need to meet tighter environmental criteria in manufacturing.

The reality increases production costs, which may act on increasing the prices of nickel.

Major impacts 

In this case, the impacts are two-dimensional, especially for China. On the one hand, nickel may become a tool for some countries to conduct global geopolitical competitions that target China.

In the Indo-Pacific Strategy 2022, the U.S. refers to clean energy as a tool to strengthen the Quad's cooperation with Australia, Japan, South Korea and the ASEAN to curb China's development.

As lithium-ion batteries serve as a major source of clean energy, strategic manipulation of nickel mining and supply is likely through relevant trade and investment activities in some of the Indo-Pacific countries.

Risks of China's several nickel-related investments in the Indo-Pacific countries, such as those in Indonesia, may rise because great profits from processed nickel could drive host countries to localize the industry in the name of environmental concerns and pressures from local people.

The International Energy Agency estimated that a doubling of lithium or nickel prices would induce a 6-percent increase in battery costs. Rising prices of nickel increase the cost of manufacturing EVs, which hits domestic EV start-ups.

Moreover, the high prices of nickel will destabilize the financial market.

Surging nickel prices drive up stock prices in the energy sector, which will lead traders to suffer losses from "malicious" short-selling of block trading, while pressures on production and manufacturing may concurrently increase.

Soaring nickel prices can also drive up prices of other metals, such as cobalt, which may increase manufacturing costs of automobile and semiconductor industries. To cope with the situation, traders may conduct block transactions frequently, which causes volatility of the financial market. 

Preparations China could make

China could propose a set of model rules for Chinese investors to secure nickel-related investments under the Belt and Road Initiative. 

The model rules should cover environmental issues, labor standards, investment treatments, standards of reparations after expropriation to boost the confidence of potential investors and secure the rights and interests of pre-existing investors.

In the technological field, China could enhance funding for R&D in nickel processing and lithium-ion batteries longevity. 

China has nickel resources, but technical barriers in nickel refining persist and the methods to extend the longevity of the batteries in use also need to figure out. 

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