Hopefully a “double” bottom
It is not surprising that in this year metals do not belong to the best performers among the various types of investment and commodity classes. In particular, the important industry and battery metal nickel did not escape unscathed in 2023. At the beginning of the year, nickel was still being traded at USD 30,000/mt on the London Metal Exchange (LME), but now the price is just below USD 18,000.00/mt, which is a drop of around 40%. This means that the critics, like many steel mill companies, have been proven correct in asserting that the price for nickel on the LME was overvalued. If, however, the current quarterly results of the loudest admonishers can be examined, it can be seen that results have been more on the meagre side, despite (or because of) lower nickel prices. Perhaps they should not have been all crying out for this.
Of course, nickel did not (only) lose value because of the opinions of those in the market, but above all because of the increasing surplus of negotiable class 1 nickel. Also, the fact that there is still a high uncertainty regarding the economic recovery in China, globally the biggest consumer, plays a role. Therefore, it is also not surprising that early economic indicators, such as, for example, the Purchasing Manager Indices (PMIs) in almost all countries of the world have worsened. In addition, these are in the area of contraction, which is below an index level of 50, and are, therefore, evidence of a shrinking economy. To what extent then, the bottom of the downturn has been reached, or even passed, can still not be clearly answered, or at least has to be followed by a big question mark.
For that reason, the news is quite timely, that in the most recent Reuters survey of one hundred economists, 87 participants expressed the view that in this cycle the US Federal Reserve (Fed in short) should not increase the interest rate level any more. As a reminder: the current reference interest rate in the USA is at 5.25 – 5.50%. In the same survey in October only 26 of 111 analysts were of the opinion that this should be the end of interest rate increases in the USA. However, 86 of 100 presently think that interest rate cuts will not happen before the 2nd quarter of 2024. Nevertheless, sentiment has been boosted in that the majority of expectations do not anticipate the interest rate position to create more pressure for the economy. Mr. Powell, head of the US Federal Reserve, immediately maintained the opposite, as the Fed sees its autonomy being endangered.
Scarcity drives the price
Even before there were watches made by Rolex or Patek Philippe or even artwork worth millions, it was known that scarcity has an influence on the price of a product. The question of whether something is abundantly available or difficult to acquire, determines therefore, the value of an object or product. Therefore, it has also been argued that the nickel price on the LME was only so high because exchange deliverable nickel, used mainly for batteries, was in short supply. Implicitly this would render the LME unsuitable as a reference for other commodities containing nickel, such as those used in the production of stainless steel for example. This question of the LME being used as an international price reference has already been discussed here in depth, and so questions asked now should be more about the scarcity phenomenon.
While the availability of watches is kept artificially in tight supply by Rolex or Patek Philippe, raw materials have always been seen as scarce. Yet, this always has to be looked at case by case. Despite there being, in most cases, sufficient natural resources in the sense of geological reserves, this is different in the sense of short term availability at reasonable prices. In this respect, it is not only the availability of certain metals in the earth’s crust which is decisive, but also the economic scarcity is a deciding factor in the formation and volatility of prices. As well as the geological factor, further important parameters include the concentration of ores in their countries of origin and processing, the political stability and governance of those countries, the growth of demand, the existence of trade barriers and the share of primary production of the total consumption.
For anyone interested in more details on these afore mentioned topics of trade barriers and scarcity of the key commodities, nickel, chrome and stainless steel scrap, it is recommended to take another look at two Oryx Stainless Group studies compiled by the Centre for European Economic Research (ZEW) and the Technical University (TU) of Berlin, which can be found using the following links:
Sustainability makes the difference
That being said, if the future valuation of stainless steel scrap is now considered, then it will be seen that there is another aspect, as well as the existing structural scarcity of primary raw materials, which is already having a value-increasing effect, and which will also, in the medium and long-term drive prices higher.
The availability of both steel scrap and stainless steel scrap is structurally scarce, since the volume largely depends on the lifetime of the products (in other words, from past production), as well as on the resulting creation of direct production scraps from current processing (new scrap). Since the 1960s, stainless steel production has had an incredible compound annual growth rate (CAGR) of 5.8%, so today’s scrap supply can never meet current demand. Therefore, there can only ever be a very short-term and temporary regional oversupply if, for example, the economy breaks down causing demand to temporarily fall.
However, the more important aspect is that the primary raw materials, in regard to the carbon footprint, can never achieve the sustainability of the recycling material stainless steel scrap. And so there is no need to be a clairvoyant to see that if the carbon footprint is fully priced in, the raw materials used in stainless steel production will significantly increase the value of stainless steel scrap, also compared to the equivalent primary raw materials.
EU regulations, the first part: About batteries, waste batteries and new passports
The European Union, on average, issues over 600 different legislative acts per year. About 60 of these legislations are regulations, guidelines or resolutions of the European Parliament and the Council. One of these legislative acts, which was adopted and issued after nearly three years of consultation, is the “Regulation (EU) 2023/1542 […] about batteries and waste batteries […]” – in short, battery regulation.
This new regulation comprising 117 pages not only replaces an old directive from 2006, which, it must be pointed out, only had 14 pages. It also introduces a new regulative component: a product passport. This passport, or better, the battery passport, will contain, along with other information, the carbon intensity of the upstream manufacturing process, the origin of the raw materials, the chemical composition and also details about the recycled content. From 2027 every battery placed in the market must have such a product passport which can be read by a QR code. Already one year prior, i.e. from 2026, there is a basic labelling obligation which covers all the same features.
But this is not all. The regulation not only stipulates the introduction of the passport with specific details about the recycled content, but it also requires details of collection and recycling rates, including recycling efficiency, i.e. how high the share of recovered recycling materials is in respect to the material input and the material recovery rates. In targeting collection rates, the EU is aiming specifically at waste batteries from appliances and lithium-ion batteries which are, for example, used in e-bikes and e-scooters. The latter, to use EU language, are described as “batteries for light means of transport”. So that the quota for these types of batteries can, in accordance with the regulation, increase to 85% by the end of 2031, it would be better if e-scooters were no longer dumped into the Rhine River (NB: this used to be some kind of “sport” in larger German cities, like Cologne).
Above all, the battery raw material and pre-cursor manufacturers are being asked to meet targets for the recycled content. They will have to initially provide a general verification of how much recycled raw material is contained in batteries manufactured in the EU from 2028. Then, as of 2031, a recycled content of 16% cobalt, 6% lithium and 6% nickel has to be achieved. The targets rise to 26%, 12% and 15% respectively by 2036. Recyclers have also been given appropriate efficiency targets. I.e. equipment and processes have to achieve a recycling efficiency of at least 70% by 2030 respectively 2031, with metal recoveries of 95% of copper and nickel respectively and 80% of lithium.
Battery recycling: significant capacity expansion in Europe
In the expectation of a consequential future recycling demand for lithium-ion batteries in the field of electromobility, there is currently an expansion wave into recycling capacities taking place in Europe. The Fraunhofer Institute for System and Innovation Research ISI estimates that the available capacities could increase to 400,000 tonnes annually by the year 2025, with around an annual 160,000 tonnes installed by the end of 2023. At the beginning of 2020, the capacity was significantly below 60,000 tons, according to the researchers. The challenge: at present there are not enough waste batteries to fill these capacities. The biggest proportion of current scrap waste is production waste.
For 2025, the researchers forecast a lithium-ion battery waste flowof between 200,000 to 250,000 tonnes. About 60% of these stream is seen to originate from European gigafactories and thus to be production waste. Only by around the year 2035 will the biggest proportion be end-of-life electric vehicle batteries. It must be taken into account here that, for example, electric vehicle batteries which are no longer suitable for the original purpose for which they were manufactured, will not necessarily have to be recycled immediately. Depending on condition, such batteries can, for example, find a second usage as a stationary energy storage device. The typical lifespan of an electric vehicle battery can be, at the moment, expressed as eight to ten years, but this can be doubled, according to scientists, if they have a second usage.
An industry on the upswing
Due to the long-term expectations and the supportive regulative environment, battery recycling is a growing branch of industry in which currently many different market operators are participating. The scope here ranges from outsourcing and research projects, to pilot projects by car manufacturers, up to large-scale projects by battery cell producers new on the market, or investments by specialised, listed companies. One example of outsourcing from a former research project is the company Duesenfeld GmbH, located in Wendeburg, Lower Saxony. This company was recently honoured with the German Sustainability Prize of 2024 in the field of energy storage and transmission technology. It was able to assert itself over, amongst others, the German subsidiary of Northvolt, one of the biggest battery cell producers in Europe.
On the other hand, there are listed specialists such as the South Korean SungEel Hi Tech Group, or the American Li-Cycle. The latter introduced the terminology “spokes” and “hubs”. This refers to a two part recycling process: the collection, discharge, dismantling and finally a mechanical process of shredding the waste battery cells takes place in several (smaller) “spokes”. The product which remains and is in demand is the so called black mass, in which the battery’s main components of value, nickel, cobalt, manganese and lithium are contained. To reclaim these to a suitable form, further processes are necessary. In the Li-Cycle concept, the black mass is transported by single “spokes” to one “hub”, where the metals are reclaimed by hydrometallurgical means.
Which technology will ultimately dominate?
Finally, the question remains as to which technology could prevail in the future. A number of projects and a large share of the recycling capacity, as described above, only actually cover the first stage up to the production of the black mass. At present, black mass is an intermediate product and as such a feed material mainly for further refining at larger nickel and cobalt manufacturers. This is, above all, due to the fact that the investment costs and also stipulations associated with this process are significantly lower than would be the case for a downstream hydrometallurgical process stage or even a pyrometallurgical plant. On the other hand, the recycling expert and cathode active material (CAM) manufacturer Umicore is backing pyrometallurgy. A plant with a capacity of around 150,000 tonnes should play a leading role in European battery recycling in 2026.
EU regulations, the second part: CBAM – New Legislation Shaping the Future
The European Union (EU) has introduced the Carbon Border Adjustment Mechanism (CBAM) as a crucial tool in the fight against climate change and the promotion of cleaner industrial practices. Its main goal is to assign a fair cost to the carbon emissions associated directly and indirectly with the production of carbon-intensive goods entering the EU. Thus, the CBAM complements the existing EU Emissions Trading System (ETS) by ensuring that the carbon price on imports matches that of domestically produced goods. This mechanism is important in preventing ‘carbon leakage,’ which happens when EU-based companies relocate carbon-intensive production to countries with less stringent climate policies.
The CBAM will be rolled out in two phases, starting with a transition period on October 1, 2023. During this phase, importers of goods covered by the new rules only need to report the greenhouse gas emissions in their imports without any financial payments or adjustments. In the second phase, starting from 2026, the purchase of CBAM certificates will become mandatory. Importers are required to submit a report on CBAM-relevant goods within one month of the end of each quarter. The first report is due by January 31, 2024, covering imports from the fourth quarter of 2023.
Initially, the CBAM will apply to specific goods and precursors with carbon-intensive production and a high risk of carbon leakage. For companies dealing with raw materials e.g. Iron, steel and aluminium will from now on be part of the CBAM legislation. However, it’s important to note that for iron and steel, only direct emissions need to be reported, and scrap metal, a key part of the steel industry, is not subject to the CBAM. Similar to the European CBAM, this November the US has introduced the Foreign Pollution Fee Act. This legislation would impose an import fee on product categories with a high greenhouse gas intensity for certain countries. As already reported by Recycling Today, this legislation is still a draft and needs to be further detailed.
Will nickel reserves in Indonesia be depleted in six years?
Indonesia, the leading producer of high grade, saprolitic ores (approx. 1,7% Ni) could be confronted with the depletion of this high grade reserve in about six years, which then could pose the risk of material shortages for, above all, the Asian production of stainless steel. The Indonesian Mining Association emphasised the necessity of comprehensive attempts to maintain nickel reserves and to improve the downstream strategy. One possible solution could be the further expansion and investment into technologies, which could use the limonitic ores (approx. 0.7 – 1.5% Ni), the reserves of which, according to the Mining Association estimates, could last for about another 80 years.
These ores are mostly used in hydrometallurgical processes from which battery-grade nickel can be won. On top of this, the further exploration of previously unexplored regions in Indonesia could provide additional reserves. The important position of the country in the global nickel market could turn it into a swing producer, which could have impacts on supply, especially in a market with lower prices, according to the Reuters reporters in London and Jakarta.
At this time, we mourn all victims of violence, along with their families, as we are all joined by and committed to the values of humanity, tolerance and human dignity to the highest degree.
LME (London Metal Exchange)
|LME Official Close (3 month)|
|November 13, 2023|
|Nickel (Ni)||Copper (Cu)||Aluminium (Al)|
3 Mon. Ask
|LME stocks in mt|
|October 16, 2023||November 13, 2023||Delta in mt||Delta in %|
|Nickel (Ni)||42,870||43,374||+ 504||+ 1.18%|
|Copper (Cu)||181,000||179,925||– 1,075||– 0.59%|
|Aluminium (Al)||486,600||479,650||– 6,950||– 1.43%|