Germany and Finland stifle Nornickel in move to support EU lithium-ion battery manufacture?

Laurie Meadows
20 January 2023 (0335 UTC)
“The nickel alloy market is estimated at around $10 billion and expected to grow by 8–10% over the next five years. That is why we see a great opportunity for Nornickel to enter new high value-added markets and actively promote nickel, the Company’s strategic product.”
Denis Sharypin, Nornickel Head of the Marketing Department 23 August 2022
Russia produces about 10% of global nickel. There are ample supplies of class 2 nickel in the world (mineral ore with less than 99.8% nickel content, contaminated with iron and other minerals), but class 1 nickel is not so abundant (about 40% of global nickel deposits are high quality class 1 sulfide mineral deposits). Russia has the world's largest deposits of class 1 nickel with 21% of global resource. Canada, at 17% has the next largest class 1 deposits, then Australia at 14%.

Class 2 nickel can be processed into class 1 nickel, but it is very energy intensive, complex, and significant environmental risks have to be mitigated - notably, toxic mine tailings. Some processing plants are operating, but their profitability is dubious. Rising demand may make these loss-making or break-even plants around the world viable, especially as Chinese investment and technology in Indonesia is working hard to convert some of Indonesia large class 2 nickel into class 1 - even to the extent of financing large hydropower facilities so 'green' nickel can be produced. (BASF also has a conversion plant in Indonesia.)

But to make class conversion economic, nickel prices will have to rise. Although China is likely to 'invest and hope', as they take a long term regional and strategic view. The greatest use for nickel is in making stainless steel, and specialist stainless steel alloys. If there is an increase in demand for stainless steel and other nickel products, then nickel prices will indeed rise. But if there is a recession, static or lower nickel prices are more likely, in which case the current poor economics of up-grading class 2 nickel remain in place. Either way, producers of the dwindling supply of class 1 nickel are well placed.

Russia's Nornickel produces15-20% of world battery-grade nickel (which uses class 1 nickel). In fact Nornickel is the world’s largest producer of both high-grade nickel and palladium.

Nornickel is developing innovative high purity nickel and cobalt-based alloys that can withstand temperature extremes, and can resist chemical degradation by acids or alkalis. These alloys are used in high tech sectors such as the space, aviation, chemical, nuclear, and oil and gas sectors - all of which have the most exacting technical specifications for nickel alloy products.

The west needs nickel, and therefore it has not blockaded Russian nickel shipments to the itself. In fact, the U.S. increased its imports of Russian nickel by 70% in the 4 months from March through June 2022. The EU's imports increased by 22% over the same 4 months. But - supposedly - the EU is looking to reduce it's imports of Russian nickel in future. It will have to buy it from elsewhere, probably Australia, Canada, or South Africa. Distance makes it expensive. (Markets in friendly countries will probably be happy to buy the cheaper Russian product.)

In December 2022 the Finnish railway company VR announced it would stop carrying nickel from Russia to Nornickel's nickel refinery plant in Harjavalta, Finland. The Finnish plant takes around 24% of Nornickel's output (about 65,000 tonnes per year). This plant supplies nickel sulfate concentrate solution used to manufacture lithium-ion  batteries.

The batteries are manufactured by a new BASF facility in East Germany. BASF ultimately aims to annually produce enough batteries for 300,000 electric vehicles.

BASF also has a small metal production plant in Harjavalta, Finland, producing purified metal nickel cathode material for the EU market. Nornickel's ore refinery is conveniently located nearby.

The Russian company and BASF have been partners for a long time and have announced their intention to further deepen their cooperation further since establishing the battery district in Harjavalta." April 14 2021

Well, they may have been partners for a long time, but so were Siemens - and they have left Russia without a backward glance.

Nornickel has previously commented that, in effect, cheap rail transport is essential to Nornickel's profitability at Harjavalta. Currently Nornickel produces 10,000 tonnes of 'nickel sulphate solution' per year, but aims to expand processing to quadruple production within the next 5 years. Presumably, the Finnish move is designed to ultimately force Nornickel to close its European plant at a loss and exit Finland.

The EU is moving to source strategic minerals from countries they consider 'friendly', such as Australia and Canada. Lithium-ion batteries use (expensive) cobalt, whose African source is regarded as unstable, and nickel can, to some extent, help reduce cobalt use. Lithium Nickel Cobalt Aluminum oxide Li-on batteries contain 80% nickel, and Lithium Nickel Manganese Cobalt oxide Li-on batteries contain 33% nickel (new formulations are pushing the nickel content in the latter to near 80%). These two battery types are the types most commonly used in electric cars.

If the Germans don't take 'local' Russian high grade nickel as part of some devious geopolitical strategy, they will have to source it from far distant shores, at much greater expense. Unless new deposits of high grade nickel are found locally, or unless there is some tech 'breakthrough', the price of batteries for electric cars in Europe will rise as a result. As the price of the battery is a major component of the price of an electric car, this will dampen demand for electric cars - especially as consumers are already under financial stress from previous episodes of EU self-harm which have left Europe with a much higher energy-cost structure, and higher costs for food production.

'Friendly countries' will exploit Russia's dilemma. They will receive cheaper high grade nickel ore, have lower costs of battery production, lower costs for electric cars, and reduced dependence on petrol and diesel powered vehicles.

Perhaps this is a good thing. Developing economies will receive a boost, and the pampered west will receive the opposite - at their own hands. But there is one caveat to this story - possible new high grade nickel deposits have been found in Finland.

Finland has been a mineral miner and exporter for many years, but its mineral resources have also been shrinking for many years. Finland has well developed advanced metallurgical industries, and so it has replaced local production with imported minerals for processing and re-export. Including nickel. But recently the confusingly-named 'Nordic Nickel' company has discovered some high grade nickel deposits (class 1) in Finland.

"Our maiden drilling campaign is on track to commence in January 2023 which will see us test the multiple electromagnetic (EM) conductors identified at Hotinvaara.

With these additional exploration licences, our exploration area has expanded from 5km-square to 83km-square of highly prospective ground. This should see us operating in the region for a long time to come.”

Nordic reports its maiden drilling campaign at Pulju will begin in January 2023, and it will initially focus on the Hotinvaara Prospect targeting deeper, ‘high-grade’ massive sulphide nickel mineralisation.

The company states the granted exploration licences cover the areas of exploration potential along strike from Hotinvaara. It also notes it has now secured around 25km of strike length of prospective stratigraphy known to host shallow nickel sulphide mineralisation.

The Pulju Project is located in the Central Lapland Greenstone Belt of Finland, 50km north of Kittilä. The Hotinvaara prospect has a mineral resource estimate (MRE) of 133.6 million tonnes @ 0.21% nickel (Ni) and 0.01% cobalt (Co)." 9 December 2022

Finland already has a nickel processing plant. Could it be that it has one eye on their future processing capacity, and whether or not that can handle a good supply of domestically produced class 1 nickel ore? Is it positioning itself as a 'green' nickel producer, the resource base for a Europe wide shift to electric cars? Complete with EU owned battery recycling facilities?

Nornickel, in conjunction with Finnish renewable-energy supplier Fortnum and battery maker BASF established a plant in 2021 that recycles the metals in lithium-ion batteries. The recycled metals, including nickel and cobalt, would then be added to primary materials to 'close the loop' of lithium ion battery manufacture.

"“The combination of battery materials production and recycling enables the circular economy by closing the loop,” said Tim Ingle, Vice President Precious Metals Refining, Chemicals & Battery Recycling at BASF. “To drive electrification, we are focused on bringing solutions for high energy density cathode active materials and high-efficiency lithium extraction for battery recycling.”

Nornickel describes the construction of a modern recycling plant as a further step towards becoming “one of the most sustainable nickel refineries in the world”. The Russian company and BASF have been partners for some time and have already announced that they want to further intensify their cooperation.

...The cathode materials business is still a relatively small unit under the BASF umbrella but is one of the Group’s most important innovation projects. From 2012 to 2015, the company made a number of acquisitions and investments to gain access to the cathode market.""

It seems to me that BASF is setting up conditions to bankrupt the Nornickel plants, buy distressed assets, and become a 'full cycle' battery manufacturer while shutting Nornickel out of the same 'green' credential.

Most likely the EU will at some point apply a carbon tax on any batteries produced without an ability to recycle the constituent material with 'green' energy. Will they also penalise fossil fuels used in production of ore? Will they compute the fuel used to transport ore? Will they impose carbon taxes on electric cars produced in other countries on the grounds their production is not 'green'?

All this is speculation on my part. Maybe there is no plan to elbow Nornickel out, or to buy its assets 'on the cheap'. Maybe the Finnish class 1 deposits will take years to come into production. Maybe the initial estimates of the deposits are far too high. Maybe another rail operator will pick up the license VR has voluntarily given up, and ore from Russia will continue to flow.

We'll see.

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