Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / How a Nickel Glut Is Reshaping the EV Battery Race
Transcript
- Lucas: So there's a commodity that is almost single-handedly reshaping the economics of electric vehicle batteries right now, and it's not lithium. It's nickel. Luna: Nickel — the stuff in stainless steel, and also a key cathode material. But I thought the story in nickel for the last few years has been about shortage fears. What changed? Lucas: What changed, in two words: Indonesia processing. Indonesia basically decided it wanted to be the Saudi Arabia of nickel, and they built out an enormous amount of processing capacity — mostly Chinese-backed nickel pig iron and mixed hydroxide precipitate plants. Luna: And they succeeded. The market went from worrying about a deficit to drowning in supply. Lucas: Exactly. The London Metal Exchange nickel price has fallen from over $100,000 a ton during the 2022 short squeeze — that crazy event where the LME had to halt trading — to around $16,000 a ton today. That's a drop of more than 80 percent in four years. Luna: Eighty percent. That's brutal for producers. But for battery makers, that has to be a huge cost relief, right? Lucas: It is, and that's the key angle here. The cathode is the most expensive part of a lithium-ion battery, and nickel-rich chemistries like NMC — nickel manganese cobalt — are the dominant chemistry for long-range EVs. So cheaper nickel directly lowers battery pack costs. Luna: And lower battery costs mean cheaper EVs, or better margins for automakers, or both. Lucas: Right. Meanwhile, the nickel producers that can't compete at $16,000 a ton are shutting down. BHP just put its Nickel West operation in Australia on care and maintenance. First Quantum Minerals suspended its Ravensthorpe mine. New Caledonia's mines are struggling. Luna: So we're seeing a shakeout where only the lowest-cost producers survive — and right now, that's Indonesia. Lucas: Exactly. Indonesia has the advantage of cheap coal power, abundant ore, and massive new processing capacity. But there's a catch: most of that nickel is what's called Class 2 nickel — lower purity, used for stainless steel. Luna: And EV batteries need Class 1 nickel — high purity, at least 99.8 percent. So the glut is partly in the wrong grade? Lucas: That's the nuance. Some of Indonesia's new high-pressure acid leach plants can produce Class 1 nickel. But not all of it. So you have a two-tier market: plenty of low-grade nickel, but the high-purity stuff for batteries still has a premium. Still, the overall price collapse has dragged down the high-grade price too. Luna: And what does this mean for the energy transition timeline? Because one of the big narratives has been that we don't have enough battery metals. Lucas: For nickel, that narrative is dead for now. We have more than enough. The question is whether the mines outside Indonesia can survive long enough to supply the next wave of demand. If they all close, we become overly dependent on one country — geopolitically similar to oil and OPEC. Luna: So it's a classic commodity cycle problem: low prices today cause underinvestment, which leads to shortages tomorrow. Lucas: Precisely. And that's where the oil and gas analogy comes in. The same thing happened in oil in 2015-2016, when prices crashed and investment dried up, only to cause tight supply years later. Nickel could follow that script. Luna: But for the immediate term, the low nickel price is a tailwind for EV adoption. We should see battery costs fall further. Lucas: And we are. BloombergNEF estimates battery pack prices will drop below $100 per kilowatt-hour this year for the first time — a threshold where EVs reach price parity with internal combustion vehicles in many segments. Luna: That's huge. So the nickel glut might actually accelerate the transition, at least in the short run. Lucas: Exactly. Meanwhile, the broader energy market is seeing some interesting crosscurrents. WTI crude is around $79 a barrel as of last week, up from $72 in mid-June. That's a decent rally driven by OPEC+ production cuts and geopolitical tensions. Luna: And the clean energy ETF, ICLN, is down about 1.4 percent in the past five days. So we're seeing oil up, renewables down — that familiar divergence. Lucas: Right. But nickel is interesting because it cuts across both worlds. It's a commodity that benefits the clean energy transition, but its price is being driven down by fossil fuel powered processing in Indonesia. So it's not a clean story. Luna: Nothing ever is in energy economics. Speaking of which, if walking through the economy with us has made something click — maybe a concept, a market move, a connection you hadn't seen — we keep this show ad-free and listener-supported. A couple of dollars a month is genuinely what keeps these going. You can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, and it's not about perks or rewards. It's just about keeping the conversation going without any sponsor noise. So if you've gotten something out of it, that link is there. Luna: Alright. So back to nickel — and the geopolitics. Indonesia has been tightening its grip on the supply chain. They banned raw nickel ore exports back in 2020 to force processing to happen domestically, and it worked. Lucas: It worked almost too well. Now they're talking about controlling the price, maybe even forming a nickel cartel similar to OPEC. Indonesia's investment minister floated that idea earlier this year. Luna: A nickel OPEC. That would be fascinating — and probably illegal under WTO rules. But it shows how seriously they take their position. Lucas: And it's a reminder that even in the energy transition, resource nationalism is alive and well. Countries with critical minerals are going to flex their power, just like oil exporters did in the 20th century. Luna: So for investors, what's the takeaway? Should they be bullish on nickel miners outside Indonesia, or bearish? Lucas: Short term, bearish on high-cost producers. But long term, there's a case for diversification. Automakers are already trying to secure supply chains outside Indonesia — Tesla has deals with Vale in Canada, for example. And new technologies like sodium-ion batteries could reduce nickel demand, which adds another layer of uncertainty. Luna: So it's a market in flux, with a lot of moving parts. But the bottom line: cheaper nickel is good for EV adoption, and that's a big deal for the energy transition. Lucas: Yeah, and it's a reminder that commodity cycles don't care about narratives. Three years ago everyone was panicking about nickel shortages. Now we're swimming in it. The only certainty is change. Luna: And that's why we keep coming back to these conversations. Lucas, thanks for breaking it down. Lucas: Thanks, Luna. And to our listeners — we'll be back tomorrow with another angle on what's moving energy markets.