Will the Russian-Ukrainian conflict exacerbate the price increase of electric vehicles?

Wen | Yin Lu Zheng Hui

After the conflict between Russia and Ukraine, the global price of bulk goods has opened a rising channel, of which the most closely related to electric vehicles is the price fluctuation of nickel metal. Affected by the Russian-Ukrainian conflict, the spot settlement price of nickel on the London Metal Exchange broke through $26,000 on February 25, the highest point since May 2011.

Russia is the world's third-largest producer of nickel metals, accounting for 11% of global production in 2020, with the top two being Indonesia and the Philippines respectively. However, specific to the high-purity nickel required for power batteries, Russia is the world's largest producer, and russia alone occupies more than 15% of the global battery-grade nickel market, and is the world's largest supplier of battery-grade metal nickel.

Due to Russia's strong position in the battery-grade metal nickel market, after the outbreak of the Russian-Ukrainian conflict, under the influence of psychological, financial and trade triple anxiety, the fragile nerves of the power battery supply chain have once again borne great pressure. However, after comprehensively analyzing the information of all parties, the "Finance eleven" judged that the Russian-Ukrainian conflict will indeed stimulate the price of nickel to soar in the short term, but the market basic disk of battery-grade metal nickel will not change significantly, and as the largest producer and consumer of battery-grade metal nickel, Russia's transaction with China will not be greatly impacted.

Psychological and financial factors push up the spot price of nickel

At present, although the spot settlement price of nickel metal has rushed to a ten-year high, the price of nickel futures on the London Metal Exchange has fallen back to the price of the 18th on the 25th after standing at a high point on February 24. In addition, the domestic Shanghai nickel futures price also fell after the 24th rushed higher. Nickel metal showed a fierce spot rally and futures fluctuated sharply.

The number one reason for pushing up spot prices is psychological influences. According to Shao Wanyan, a senior researcher at Guotai Junan Futures, in January 2022, the dominant inventory of the global nickel market was at a very low position and continued its downward trend, with the total global refined nickel inventory at about 110,900 tons, of which the London Metal Exchange (LME) inventory was 94,800 tons and the domestic inventory was 16,100 tons. Low inventories have created concerns about supply, which have intensified in the wake of the Russian-Ukrainian conflict, which in turn has quickly pushed up spot prices.

In addition to psychological factors, financial factors are also an important reason for the market to worry about the shortage of nickel supply after the outbreak of the Russian-Ukrainian conflict. An important means for the West to sanction Russia now is to kick Russia out of the SWIFT financial transfer system. In the case of peer-to-peer spot transactions between two countries, there are multiple ways to bypass SWIFT, but financial markets cannot bypass SWIFT. The financial attributes of non-ferrous metals are extremely strong, and once Russia's contact with SWIFT is severed, the trading of Russian nickel is bound to be difficult, and it is almost impossible to freely obtain Russian nickel products from the international market.

The electric vehicle supply chain has shown anxiety about nickel prices after the outbreak of the Russian-Ukrainian conflict, because the continuous soaring of battery raw materials in the past year or so has depleted the cost digestion capacity of the entire new energy vehicle industry chain. Now the price fluctuation of any raw material can immediately cause high tension between car companies and battery companies.

Nickel is the main raw material for the cathode of ternary lithium batteries, and high-nickel ternary lithium batteries are a small number of high-end products that can also create profits in the product line of battery companies. Due to the low dependence of high-nickel ternary batteries on raw materials such as lithium carbonate and other soaring prices, and the increase in nickel metal in the past year is almost negligible compared with other battery main materials, so although the installed capacity of lithium iron phosphate batteries has increased significantly in the past year, ternary lithium batteries are the main source of profit for battery companies.

If the nickel price continues to rise, it will encroach on the last profit space of battery companies. Therefore, although nickel accounts for a small proportion of the entire new energy vehicle industry chain, the price fluctuations of nickel have caused common anxiety among car companies and battery companies, in order to alleviate this anxiety, it is the most reasonable operation to lock in the supply of nickel early, and this practice is bound to cause the price of nickel to go further higher.

Under the combined effect of psychological and financial factors, the market's short-term supply of nickel has increased significantly, which is the main reason why spot prices have broken through the ten-year high. However, futures prices have not risen all the way, especially the domestic Shanghai nickel price has gone all the way down after the evening market on February 24, as of 3 pm on February 25, the decline has reached 2%. For the forward supply of nickel, the market is not as anxious as spot.

The basic disk of the nickel market has not changed

The main uses of nickel are two, manufacturing stainless steel and ternary lithium batteries. The first use is mature use, which has seen limited growth in recent years and even has a tendency to shrink under environmental pressures. The demand for nickel for making batteries has been growing rapidly. BloombergNEF predicts that demand for battery-grade metal nickel in 2030 will be more than five times that of 2021. The world's major nickel metal suppliers are also turning to battery nickel, such as BHP Billiton's battery nickel accounted for only 21% of the total supply in 2017, and this proportion has reached 85% in 2021.

China is the largest consumer of battery-grade metal nickel, Chinese manufacturers currently occupy more than 70% of the global power battery market share, according to the US lithium battery national blueprint document predicts that by 2025, China will account for 73% of the global lithium battery production share.

The biggest demand for nickel comes from China, so there won't be a big problem with Russia's battery-grade nickel sales. If China, the largest buyer, can obtain enough nickel from Russia, the impact of Russian nickel trading difficulties on the international market can be fully alleviated. For China, the supply of nickel will be tight on the outside and loose on the inside. After the short-term anxiety caused by the Russian-Ukrainian conflict is released, nickel prices will gradually return to fundamentals, although supply is still tight due to strong market demand, but there will be no extreme case of price jumps.

On the whole, the Russian-Ukrainian conflict has indeed caused a jump in nickel prices in the short term, which in turn has caused further price increases in battery raw materials, but in view of the fact that this price increase is mainly caused by market concerns, the fundamentals of nickel supply have not been adversely affected by the Russian-Ukrainian conflict, and the price will not be greatly affected in the long run.

For short-term price fluctuations, from nickel ore to positive electrode to power batteries, enterprises in these three links of the supply chain can be basically dissolved and will not be transmitted to the terminal car companies.

However, the price fluctuations of nickel metal have further aggravated the price sensitivity of the new energy vehicle supply chain, and it is not ruled out that any slight change in raw materials can penetrate the entire supply chain and once again trigger a wave of price increases in car companies.

The author is a journalist and researcher at Caijing, editor: Mark