The Metal That Worries Tesla Most Is Getting Much Cheaper

(Bloomberg) --

Nickel tumbled after a major Chinese producer's unexpected plan to add supply eased concerns about a structural deficit for the material that Elon Musk has said is the biggest concern for Tesla Inc. batteries.

Tsingshan Holding Group Co., the world's top stainless steel producer, will soon start supplying nickel matte to Chinese battery material producers and plans to expand its nickel investments in Indonesia. Matte is an intermediate product made from concentrate that can be further processed into battery-grade chemicals.

Benchmark nickel prices were trading at a six-year high as recently as last week on expectations surging demand from the electric-vehicle sector would spur a shortage. Musk said in February that nickel was Tesla's top concern for scaling lithium-ion cell production and was behind a shift to using iron for some EV batteries instead.

Nickel is critical to the world's clean-energy transition and previous comments from Musk have drawn attention to the possibility of a crunch. He pleaded with miners last year to produce more, promising a “giant contract” for supply produced efficiently and in an “environmentally sensitive way” amid concerns that a deficit looms as early as 2023.

Tsingshan's technology enables it to switch between making materials for stainless steel or batteries through pyrometallurgy rather than hydrometallurgy. Refined nickel prices in London have dropped more than 10% in two days.

Nickel-pig-iron producers can now make nickel matte by slightly adjusting the manufacturing process, said Celia Wang, an analyst at Mysteel. This will “substantially ease” concerns of a shortage of battery materials, she said.

While the upside in nickel prices will be capped until October, when Tsingshan is set to start deliveries, the market will monitor progress as there's the possibility of setbacks considering the new technology, Wang said.

Nickel fell as much as 5.6% to 130,510 yuan a ton on the Shanghai Futures Exchange, dropping by the daily limit. Futures on the London Metal Exchange slumped more than 8% extending Wednesday's 6.7% decline. Stainless steel futures also slumped by the daily limit in Shanghai.

The drop in nickel prices pushed share prices lower. In Sydney, Nickel Mines Ltd. fell 10% and IGO Ltd. lost almost 8%. In China, Zhejiang Huayou Cobalt Co. slumped 10% and Ganfeng Lithium Co. declined 9.7%.

©2021 Bloomberg L.P.

With assistance from Bloomberg