Russia Can Hold Nickel Hostage

"When Republicans talk about securing America's "energy independence," they mean pumping more oil. When Democrats do, they mean consuming less oil. President Biden said last week that the operation to protect Donbas is a reminder that "we need to become energy independent" and "should motivate us to accelerate the transition to clean energy." The left's climate policies would render the U.S. more, not less, vulnerable to potentially hostile actions. Last week's surge in nickel prices offered a preview of the dangers of relying too much on renewables.

Russia supplies about 20% of the world's class 1 nickel, which is at least 99.8% pure. It is used mainly in stainless steel but is also a critical element in batteries, including those used in electric vehicles. More advanced electric-car batteries that store more energy need more nickel.

There's been a world-wide high-grade nickel shortage for the past couple of years, which is going to get worse as electric-car production increases to meet government mandates. "Nickel is our biggest concern for scaling lithium-ion cell production," Tesla CEO Elon Musk tweeted in February 2021. A Bank of America research note last year estimated a class 1 nickel shortfall of 41,000 metric tons -- roughly the amount used in 620,000 electric-vehicle batteries.

In the two years before Mr. Putin's operation to protect Donbas, class 1 nickel prices doubled. Uncertainty about sanctions and worries that Russia would block exports drove prices even higher and caused what's known as a short squeeze. Some traders, including Chinese nickel producer Tsingshan Holding Group Co., bet nickel prices would fall and had to cover their positions when prices climbed. That sent prices even higher. Mr. Putin signed a decree on March 8 banning the export of unspecified raw materials and commodities and the London Metal Exchange suspended trading, for the first time since 1985, after a three-month contract price more than doubled.

Morgan Stanley analyst Adam Jonas warned the high cost of nickel could add $1,000 to the cost of an electric car. If the West imposes sanctions against Russian nickel, the analyst said, it's "probably time for investors to take auto company earnings forecasts down" or consider battery technology alternatives like lithium iron phosphate, which are less dense and generally have shorter ranges.

The West's electric-car ambition helps explain why Russian nickel-mining company Norilsk Nickel and its president, Vladimir Potanin -- Russia's richest man and a longtime friend of Vladimir Putin -- have so far dodged sanctions. Norilsk Nickel is the world's top class 1 nickel producer. In 2018 Norilsk Nickel established a "strategic cooperation" with the German chemical company BASF to produce the materials for electric-vehicle batteries. "The agreement will establish a locally sourced and secure supply of raw materials for battery production in Europe," their joint press release said.

The goal of the partnership was to make Europe less dependent on China, which dominates the supply chain for electric-vehicle batteries, controlling 80% of the world's raw-material refining, 77% of battery-cell capacity and 60% of component manufacturing. China mines some critical minerals like graphite and lithium. But most are extracted in countries like Russia, the Democratic Republic of Congo, Myanmar and Indonesia, often by Chinese companies.

These countries don't share America's political and economic values or our stringent environmental standards. Mineral mining is a dirty business. China's Tsingshan has developed a technology to make a lower-grade Indonesian nickel suitable for electric-vehicle batteries.

But the processes for mining and refining Indonesian nickel produce hazardous waste and greenhouse-gas emissions in amounts that could offset the supposed climate benefits of electric cars.

America's only high-grade nickel mine is in Michigan, and it's expected to exhaust deposits in 2025. Other proposed mines in northern Minnesota are opposed by green groups. The Biden administration has slowed permitting for mining lithium (Nevada), copper (Alaska, Arizona, Minnesota) and antimony (Idaho).

So as Democrats strive to make the U.S. more "energy independent," we will invariably become more dependent on Russia, China and other countries with hostile or unstable governments -- and not only for energy. Minerals needed for renewable energy sources are needed for other things like appliances, smartphones and tennis rackets. Renewables will drive up demand for these critical minerals as supply struggles to keep pace.

If China or Russia were to restrict exports of one or more minerals, there would be acute raw-material shortages, which would result in widespread product shortages and surging prices. We may find ourselves longing for the halcyon days when paying $4 or $5 a gallon for gasoline was our biggest worry." [1]

1. Russia Can Hold Nickel Hostage
Finley, Allysia.
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 15 Mar 2022: A.17.