Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast.
Speaker 1: I'm Tracy Alloway.
Speaker 2: And I'm Joe. Why isn'tal Joe?
Speaker 1: I have a joke for you, A very special joke.
Speaker 2: Go on.
Speaker 1: Why did Anglo American write down it's nickel.
Speaker 2: Business because it was only worth five cents?
Speaker 1: That's so good. That's actually okay. My line was because
Speaker 1: it was a few cents short of a viable return.
Speaker 1: But yeah, same thing. That's really good.
Speaker 2: But you know what the thing is is my daughter
Speaker 2: has gotten really into reading me jokes, and I like,
Speaker 2: she has all these joke books. Like my brain is
Speaker 2: you can anticipate and like see where these all are going?
Speaker 3: All right?
Speaker 1: Well, on a serious note, Anglo American rejected that bid
Speaker 1: from BHP Bulletin, which is something that came up in
Speaker 1: our conversation with Jeff Curry recently, and as a result
Speaker 1: of that, it is now undertaking this formal process of
Speaker 1: selling off a bunch of assets and exploring options for
Speaker 1: its nickel operations. And one thing that I hadn't realized
Speaker 1: is just how much the nickel market has actually changed
Speaker 1: in recent years. Like I sort of heard some rumblings
Speaker 1: of it, but I read something recently that really crystallized
Speaker 1: a lot of what's been happening in that market, and
Speaker 1: it is phenomenal.
Speaker 2: I have to say, I have not given any thought
Speaker 2: about how much the nickel market has changed, in part
Speaker 2: because I never at and you point hit some conception
Speaker 2: of what the nickel market was in the first place.
Speaker 2: To your way ahead of.
Speaker 1: Me on this the one we're not thinking about the
Speaker 1: nickel market on a like at least weekly basis.
Speaker 3: No.
Speaker 2: I know like two three things maybe about nickel, which
Speaker 2: is that a lot of it's from Indonesia. I believe
Speaker 2: it has some role in batteries or green energy, and
Speaker 2: so it's kind of an important commodity. What's the third one, Oh,
Speaker 2: it's also Indonesia. Could Indonesia move further downstream in the
Speaker 2: process so that it's not just exporting the raw nickel
Speaker 2: but also exporting some of the actual like or doing
Speaker 2: some of.
Speaker 1: That pretty sophisticated factory. Those about the nickel market.
Speaker 2: These are the three facts I'm aware of about nickel.
Speaker 2: But beyond that, nun like, I could definitely not tell
Speaker 2: you the number two producing nickel country.
Speaker 1: Okay, well, I have a bunch of I definitely.
Speaker 2: Don't know why nichol is important in batteries either, so
Speaker 2: maybe we'll learn that.
Speaker 1: Oh that's a good question. Well, I have a bunch
Speaker 1: of interesting stats that I think will sort of hit
Speaker 1: home stuff that has happened recently. But you mentioned the
Speaker 1: role of Indonesia in this market, and this is something
Speaker 1: that's relatively new. So I think they became the world's
Speaker 1: top supplier of nickel just in twenty nineteen they overtook
Speaker 1: I think it was the Philippines and they now supply
Speaker 1: more than fifty five percent of the world's nickel. So
Speaker 1: just insane dominance of that market. And in addition to
Speaker 1: that dominance in terms of market share, there's also lots
Speaker 1: of geopolitical intrigue with China. China, by the way, is
Speaker 1: about to become a net refined nickel exporter, and I think,
Speaker 1: like just a few years ago it imports, so not exports.
Speaker 1: It's imports accounted for like fourteen percent of global supply.
Speaker 1: So it's gone from being like a net importer potentially
Speaker 1: to a net exporter in just a few years. Crazy, right,
Speaker 1: So these are crazy stats, and I feel like we
Speaker 1: really need to dig into what has happened here. Because
Speaker 1: there are all these sort of thematic, odd lots ideas
Speaker 1: embedded in the nickel market. So one is just the
Speaker 1: idea of structural long term demand for battery related materials
Speaker 1: that will be important in the clean energy transition. I
Speaker 1: think nickel is used in hydrogen production. Two, I'm not sure.
Speaker 1: But in addition to that, you also have the difficulty
Speaker 1: of actually building out sustainable business models for getting these
Speaker 1: strategically important minerals that we need for the transition. And
Speaker 1: we've seen Indonesia there are a lot of accusations that
Speaker 1: it's been flooding the market with cheap and low grade nickel,
Speaker 1: and so that makes it harder for everyone else, like
Speaker 1: Anglo American to make money on this specificlar nickel. We'll
Speaker 1: get into that, we'll talk about all the different types
Speaker 1: of nickel. So anyway, I just think it's such an
Speaker 1: interesting story, and it's one that's sort of flown under
Speaker 1: the radar, at least for me recently, and so I
Speaker 1: am very pleased to say that we do, in fact
Speaker 1: have the perfect guests to discuss this. We're going to
Speaker 1: be speaking with Michael Vidmer. He is the Bank of
Speaker 1: America head of Metals Research and it was his report
Speaker 1: that really put this on my radar, and he just
Speaker 1: laid out some of the numbers that I cited to
Speaker 1: you a couple months ago, and I'm so glad we
Speaker 1: could get him on the show to further discuss this. So, Michael,
Speaker 1: thank you so much for coming on our box.
Speaker 3: Thank you very much for having me.
Speaker 1: Should we start with the basic question the Joe already
Speaker 1: sort of alluded to, what is What is nickel? Because
Speaker 1: it's not a singular commodity in some respects, It's sort
Speaker 1: of like oil. There are all these different grades and
Speaker 1: production uses for it. So what exactly when we say
Speaker 1: nickel or the nickel market, what are we talking about?
Speaker 3: Yeah, so nickel is an element I think that's the
Speaker 3: first thing I would say. It comes in elementary form
Speaker 3: out of the Earth. But what normally happens is that
Speaker 3: consumers use a nickel in processed form. So you have
Speaker 3: got the refined nickel that you can use, for instance,
Speaker 3: in your in your buckles, in your belt buckles to
Speaker 3: make them nice and shiny. You can then use it
Speaker 3: or another form of nickeline former. It's more like a
Speaker 3: chemical in ev batteries. And then there's still another type
Speaker 3: of nickel is more called nickel pick or ferro nickel
Speaker 3: that you can then use in a stainless steel mil
Speaker 3: so it comes in very different forms. What all of
Speaker 3: those have in common is they have some form of
Speaker 3: nickel in them.
Speaker 2: The batteries is probably the one. You know, belt buckles
Speaker 2: have been around for a while. Stainless steel has been
Speaker 2: around for a while. Obviously a lot of interest, particularly
Speaker 2: now strategically with the energy transition, etcetera, related to batteries.
Speaker 2: What is the role of nickel in batteries and how
Speaker 2: crucial is it as one of the you know, we
Speaker 2: talk about copper, we talk about lithium. How important is nickel?
Speaker 3: So we can we can break down the battery sector.
Speaker 3: When you're looking at China and when you're looking at
Speaker 3: the world outside China. It's different type of EV batteries
Speaker 3: that common effactors can use. In China, the EV manufacturers
Speaker 3: have gone down the route of using what is called
Speaker 3: a lithium r and phosphate battery. It used to be
Speaker 3: a very simple chemistry, didn't have the same kind of
Speaker 3: energy density, didn't give you the same kind of driving
Speaker 3: ranges that you would get these other types of batteries,
Speaker 3: but it was cheap, and I think that's one reason
Speaker 3: why the Chinese evs are not as expensive as the
Speaker 3: VEST and evs. The world outside China has relied on
Speaker 3: a different type of EV battery chemistry, and these batteries
Speaker 3: contain nickel. They give you more energy density, they give
Speaker 3: you a higher driving range as well. And when you're
Speaker 3: then breaking down the battery, you have got three elements effectively.
Speaker 3: So you have got an anode and a cathode and
Speaker 3: between those that's where the electricity flows. And it's the
Speaker 3: cuthode specifically where you then have the nickel in them.
Speaker 1: So where does nicol actually come from? So we mentioned
Speaker 1: Indonesia already, I think I mentioned the Philippines. But who
Speaker 1: are the big players in this market? And how is
Speaker 1: it actually extracted from? Presumably the ground?
Speaker 3: Again, very different, very different methods of extracting the nickel. Again,
Speaker 3: if you're breaking it down a little bit, you tend
Speaker 3: to have two types of deposits out there. The wond
Speaker 3: deposit is more in the cola regions, and then you've
Speaker 3: got another set of deposits that's more in the warmer
Speaker 3: and wetter regions that you have got a lot of
Speaker 3: oxidized locks of oxidized or some weather ors a little
Speaker 3: bit more difficult to treat the former. So the nickel
Speaker 3: ores that are in the colder regions like Russia, for instance,
Speaker 3: are relatively easy to extract. You take them all over
Speaker 3: the ground, send them through a smellter, refine them, and boom,
Speaker 3: you have got your your refined nickel. The nickel ores
Speaker 3: that are in the warmer and wetter regions, because they're
Speaker 3: oxidized and weathered, they are a little bit more difficult
Speaker 3: to process. So the different technologies that you can use
Speaker 3: as one technology again where you're using fire refining, and
Speaker 3: then there's another technology where you are using sulfuric acid
Speaker 3: effectively to lead the nickel out of the out of
Speaker 3: the oars. When you're looking at the biggest players in
Speaker 3: the space, it has actually changed a lot. And you
Speaker 3: mentioned it already in the at the outset. Historically, when
Speaker 3: you're looking at it, you had Russia as a big
Speaker 3: nickel producer, Australia as a big nickel producer, the Philippines
Speaker 3: were in the fold as well, Canada to some extent too.
Speaker 3: But what's happened recently is as the energy transition started
Speaker 3: to take off market participants. We're really focused on increasing
Speaker 3: nickel supply quickly. And there's one country that's just summed
Speaker 3: at the industry in that country is Indonesia. It has
Speaker 3: the weather type of war, but it has that in abundance,
Speaker 3: so it's very easy to actually take it out of
Speaker 3: the ground. And the Chinese went into Indonesia innovative also
Speaker 3: in the production technologies and managed to take the nickel
Speaker 3: out that they then needed to drive the EVE battery industry.
Speaker 2: So I definitely want to get into Indonesia what they've
Speaker 2: done to sort of rapidly expand their domestic nickel industry
Speaker 2: so fast. But just one more question before we get
Speaker 2: to some of these policy questions and supply. When looking
Speaker 2: at a total demand global demand for nickel, how much
Speaker 2: is batteries and how much has the rise of the
Speaker 2: so called energy transition, how much has that changed demand
Speaker 2: curves relative to say where we were ten years ago,
Speaker 2: Like how important is it as a buyer of nickel?
Speaker 3: Name massive massively has changed massively? Ten years ago, the
Speaker 3: battery sector had literally no share in nickel demand. When
Speaker 3: you're looking at it now, literally all of the demand growths, Like.
Speaker 2: How many tons of nicol do we produce? And how
Speaker 2: many tons would we be producing every year if it
Speaker 2: weren't for that battery.
Speaker 3: So look a few years back, the nickel market was
Speaker 3: around two million tons. By twenty thirty, it's potentially twice
Speaker 3: as much, and literally all of the demand rules is
Speaker 3: then coming through from the EBI battery side. Okay.
Speaker 1: So going back to Indonesia, so it seems like they
Speaker 1: made a strategic decision that this was an industry that
Speaker 1: they wanted to build out. And I think it started
Speaker 1: under the former president of Indonesia whose name I am
Speaker 1: sure I'm going to mispronounce, but Sisilo Bambang you doing?
Speaker 1: Is that right?
Speaker 3: Yes? Okay?
Speaker 1: But it's been continued under Djokovidodo. Why did they decide
Speaker 1: this was an area of strategic or financial interest?
Speaker 3: So it was the Indonesians which opened up the country,
Speaker 3: but ultimately was actually China which drove that development. And
Speaker 3: I think you see that a lot in the public
Speaker 3: discussion at the moment. I think the tariffs that President Biden,
Speaker 3: for instance, imposed on Chinese EV's, I think there is
Speaker 3: this undercurrent or the concern that the Chinese government very
Speaker 3: strategically over the past twenty years built its EV industry.
Speaker 3: And when we're talking EV industry, it's not just the
Speaker 3: EV side of things that the Chinese government has focused on.
Speaker 3: It's literally the entire supply chain. So they looked at initially, well,
Speaker 3: let's build some cars as a combustion engine, but then
Speaker 3: they read the China realized it's actually hard because the
Speaker 3: US and Europe actually have quite strong industries. And then
Speaker 3: they looked, well, if it's hard to compete in cars
Speaker 3: with a combustion engine, why don't we do evs. And
Speaker 3: that's exactly what they did. And then they set up
Speaker 3: a long term strategic industry policy and looked at what
Speaker 3: they need to accomplish becoming the dominant producer of evs.
Speaker 3: And one of the things that the Chinese government realized
Speaker 3: very early on is if you have a strong demand
Speaker 3: growth for evs, you also need the roma tiers and
Speaker 3: particularly the battery romatires. Without batteries, TVs don't go very fond.
Speaker 3: So the Chinese government looked at where some of those
Speaker 3: battery romatials are. They did it in lithium, another battery
Speaker 3: romat heal, they lived in cobalt, and they did also
Speaker 3: in nickel, and in twenty thirteen, the two presidents of
Speaker 3: China and Indonesia effectively set together and the discussion pretty
Speaker 3: much went like that. The Chinese said, look, we need
Speaker 3: the nickel. The Innetian said, well, we have the nickel.
Speaker 3: The Chinese said, well, can be invested, and then he said, yeah,
Speaker 3: do Let's develop that industry together. And so the Indonesian
Speaker 3: government then, together with the Chinese, set up industrial parks,
Speaker 3: and through that industrial park, supported by Chinese money, the
Speaker 3: nickel industry and then developed very very quickly. It's remarkable
Speaker 3: at the pace with which Indonesia and China in conjunction
Speaker 3: have been building that industry.
Speaker 2: Let's talk a little bit about how fast that happened.
Speaker 2: So I think Tracy, did you say it was like
Speaker 2: twenty nineteen. Even it was the Indonesia wasn't that big
Speaker 2: of a player.
Speaker 1: I'm citing Michael here, but in twenty nineteen it became
Speaker 1: the biggest producer of nicolas.
Speaker 2: And now it's overwhelmingly Yeah, what were the nature of
Speaker 2: those early relationships, What did China get, what did they
Speaker 2: have to offer from a technological transfer? And then what
Speaker 2: is Indonesia ge I guess in terms of royalties and jobs,
Speaker 2: like how what was the economics of those So but.
Speaker 3: In Dntia realized Nidia always was an exporter of nickel wars,
Speaker 3: which is unprocessed stuff. You basically put it on the ship,
Speaker 3: send it off the Chinese to China. The Chinese then
Speaker 3: processed it. And then the Indonesian government realized at some
Speaker 3: stage that it's actually another a lot of value added
Speaker 3: in that. And they also saw that demand potentially increases
Speaker 3: very strongly, and so they wanted to build more of
Speaker 3: a value added downstream industry. Indonesia wanted to build a
Speaker 3: downstream processing industry invited and then was looking at how
Speaker 3: to actually accomplish that. So in the first instance, what
Speaker 3: they did is they stopped the exports of unprocessed nickel oars.
Speaker 3: So in twenty fourteen you could no longer ship unprocessed
Speaker 3: was In that year, Indonesia had a global nickel market
Speaker 3: share of less than ten percent, like five or six percent,
Speaker 3: very low. And then I think various countries and operators
Speaker 3: were looking at the Indonesians or and Indonesian was and
Speaker 3: I set before the Indonesian oars are weathered, was oxidized,
Speaker 3: was very difficult to process and the Chinese then went
Speaker 3: into Indonesia. It's one comedy in particular who then looked
Speaker 3: at innovative productive production technologies and started experimenting with different
Speaker 3: methods of extracting the nickel from the nickel oars and
Speaker 3: were actually quite successful and once they had distemplate in place,
Speaker 3: the nickel industry then expanded quite quickly.
Speaker 1: Has anyone else been able to replicate what that Chinese
Speaker 1: processing technology that you just mentioned, Like, is this something
Speaker 1: that other people are doing that has also increased supply
Speaker 1: elsewhere in the world aside from Indonesia or is it
Speaker 1: sort of a China Indonesia exclusive thing.
Speaker 3: So there's two two technologies. One called pressure as a
Speaker 3: leading that has been tried before, but literally when you're
Speaker 3: looking at all the projects that have been brought online
Speaker 3: in Australia over the lifetime of those projects, those projects
Speaker 3: feel not pay for the initial investment because it's just
Speaker 3: a very difficult technology. The Chinese have been very good
Speaker 3: in bringing that online. The other technology, which is more paramatology,
Speaker 3: which is fire smelting and refining, that is also a
Speaker 3: dominated by the Chinese, so they already had a very
Speaker 3: strong wall.
Speaker 2: It used to be clear Australia has basically tried to
Speaker 2: do the exact thing thing and internally have not been
Speaker 2: able to do it economically.
Speaker 3: Yeah, So there was a discussion it was about ten
Speaker 3: fifteen years ago on the type of ores that are
Speaker 3: available in Indonesia, and I think the undertone always was, look,
Speaker 3: the oars are there, but they're just very difficult to process,
Speaker 3: and therefore it's going to it might be hard to
Speaker 3: see a very big production increases coming through. And that
Speaker 3: was through up to the point where the Chinese actually
Speaker 3: then went into Indonesia and started developing those assets.
Speaker 1: So talk to us more about the sort of virtuous
Speaker 1: cycle of the supply chain that this is creating. So
Speaker 1: China now has access to this cheap and abundant nickel
Speaker 1: that feeds into their ev industry. How crucial has that
Speaker 1: nickel been in sort of building out the electric car
Speaker 1: business in China.
Speaker 3: I think nickel on its own probably wouldn't have made
Speaker 3: much of a difference, but I think where China was
Speaker 3: very strategic in making sure that all of the raw
Speaker 3: materiers that I needed it are available. So it's not
Speaker 3: just the nicer side, it is the lithium side as well.
Speaker 3: It is the cobal side as well. That's everything that
Speaker 3: goes into the cassos. And when you look at the
Speaker 3: unknote the graphite side of things, again China is dominating.
Speaker 3: So when you're looking at all of those critical raw materials,
Speaker 3: a lot of that is being dominated by China. And look,
Speaker 3: you can take a slightly different view on that. Take
Speaker 3: the last twenty years during the period of globalization. I
Speaker 3: bet around twenty ten twenty eleven, the guests that you
Speaker 3: would have heard that would have had here, there was
Speaker 3: a lot of talk about I don't know, Netflix, the
Speaker 3: services industry and the cool stuff basically now, but no
Speaker 3: one realized that actually, you can't run an economy without
Speaker 3: having the basic the basic Roman here. So the vest
Speaker 3: effectively created a vacuum in those supply chains that China
Speaker 3: effectively filled. And that's the issue that that governments now
Speaker 3: have to grapple with.
Speaker 2: How much of the Chinese edge when it comes to
Speaker 2: refining or processing or I guess even acquire raw commodities.
Speaker 2: How much of the edge is just a sheer scale question.
Speaker 2: There is a gigantic market in China period. There are
Speaker 2: a lot of workers in China period, and so setting
Speaker 2: even setting aside whether different groups of engineers and scientists
Speaker 2: could replicate these processes on paper. How much is the
Speaker 2: just the pure scale edge part of the story here.
Speaker 3: I mean, having a big domestic market certainly helps, but
Speaker 3: again what also helps is having a strategic industrial policy
Speaker 3: to actually being able to capitalize on that on that
Speaker 3: domestic market. And it's I think the conjunction of those
Speaker 3: two that wrote about that dominance in the supply to
Speaker 3: a Now the problem that we're having increasingly is and
Speaker 3: this always happens in China. We had it in steel,
Speaker 3: and we had it in aluminimum. When the Chinese government starts
Speaker 3: developing industries. There's actually inherently a lot of competition also
Speaker 3: within China, but you always get over investment, you have
Speaker 3: got overcome. So take the last study from the European Union,
Speaker 3: firms and the European Union estimates that last year the
Speaker 3: Chinese could have produced twice as many cars than they
Speaker 3: did through the over capacities that they've had. And so
Speaker 3: what you're seeing now is that some of those over
Speaker 3: capacities is or there's a threat that some of that
Speaker 3: overcapacity is actually now being exploded to the Western markets.
Speaker 3: And again that takes us back to the whole discussion
Speaker 3: about terrorists and trade protectionism, But it is that entire
Speaker 3: approach I think that we've seen the last twenty fifty
Speaker 3: years that that brought kind of those supply chains together.
Speaker 1: Okay, speaking of over capacity, I mentioned in the intro
Speaker 1: that there have been these accusations of Indonesia essentially flooding
Speaker 1: the market with low grade and low price nickel. What
Speaker 1: impact has the dominance of Indonesia on the nickel market
Speaker 1: actually had on other businesses?
Speaker 3: So, if I put it very simply, I think for
Speaker 3: China it's almost always about quantity, not about value, about volume,
Speaker 3: but not about value. And so coming back to preventing
Speaker 3: bottlenecks through the supply chain, when you're looking at the
Speaker 3: industrial policy, I think what China wants to prevent is
Speaker 3: constraints and bottlenecks and therefore higher prices that would effectively
Speaker 3: make it difficult for the strategic industry likely V manufacturers
Speaker 3: to produce those evs. And so what we see in
Speaker 3: Indonesia at the moment is a lot of discussions about
Speaker 3: where the production costs are Indonesia, what is a marginal cost?
Speaker 3: Because ultimately, if you're prioritizing value volume over value, then
Speaker 3: you're producing at costs. Now, the problem for the producers
Speaker 3: outside China is if that is the name of the game,
Speaker 3: there is not a lot of fat in producing nickel,
Speaker 3: and that's why we've seen the Western producers like BHP
Speaker 3: and Anglo actually taking a relatively bare review on their
Speaker 3: nickel assets. PHP actually is probably the one data what
Speaker 3: you mentioned Ungler before, but BHP is the one that
Speaker 3: would highlight potentially even more so. They have one operation
Speaker 3: in Australia called Nickel West. It's a really significant side
Speaker 3: big side actually, and a few years back we thought
Speaker 3: that that could actually be the supplier of choice to
Speaker 3: the Western or to the ev industry. But that's actually
Speaker 3: one of the one of the assets that BHP doesn't
Speaker 3: assign a lot of value to anymore these things.
Speaker 2: So prices have just come down so much that this
Speaker 2: big project in Australia just can't make much more.
Speaker 3: Yeah, it's effective that.
Speaker 2: I want to go back to something you said in
Speaker 2: the beginning about the two different types of chemistries. So
Speaker 2: on some basic level, the nickel based batteries are not
Speaker 2: as efficient as the sort of the chemistry that's in
Speaker 2: the West, but the Chinese battery are like the best
Speaker 2: in the world.
Speaker 3: Right. Yeah, So again this is when you would have
Speaker 3: to go back, because it's the second base evolving is
Speaker 3: evolving a lot at the moment. So initially, I think
Speaker 3: when we started talking about the ev industry, the idea was,
Speaker 3: and that's seven eight years ago, that nickel based batteries
Speaker 3: are the battery of choice in China and potentially outside China.
Speaker 3: The Chinese always had that lithium iron phosphate battery which
Speaker 3: doesn't contain any nickel, but initially because it's a much
Speaker 3: lower energy density, was never thought to be kind of
Speaker 3: the lap choice. But there was a lot of again
Speaker 3: innovation in that space, and those batteries have become much
Speaker 3: much better. They are folded differently, they are put together differently,
Speaker 3: so the energy density has actually increased as well. And
Speaker 3: so now you almost have this second lissim and phosphate
Speaker 3: market that is becoming another mainstay of the industry.
Speaker 2: So it is it just to understand this better in
Speaker 2: theory or the you know, in the sort of the
Speaker 2: chemistry lab so to speak. The nickel based bader batteries
Speaker 2: due to the lower energy density.
Speaker 3: Higher energy, higher and higher energy density.
Speaker 2: The nickel base batteries of higher and higher enginety.
Speaker 3: They're the better, but they're normally the better. But the
Speaker 3: least on phosphate batteries that the Chinese produced historically had
Speaker 3: the lower energy density. And that's fight. Oh, confused by
Speaker 3: the idea always was value. You need to have those
Speaker 3: nickel based batteries if you wanted to have a thousand
Speaker 3: kilometera driving range in the in the EV side of things.
Speaker 2: And so in the US we have nickel based batteries
Speaker 2: in the Yeah, okay, sorry, thank you for clarifying.
Speaker 1: Well, okay, on this note, I think the US and
Speaker 1: Europe would agree that evs are a strategically important thing
Speaker 1: that we want to have more of if we're serious
Speaker 1: about the clean energy transition. And yet there seems to
Speaker 1: be this tension where mining a component or a material
Speaker 1: that is actually quite important for these things, viz. The
Speaker 1: batteries is just not that profitable in the current situation.
Speaker 1: So what do they do about it? How do we
Speaker 1: resolve that attention.
Speaker 3: That's the focus at the moment, Yes, how do you
Speaker 3: resolve that? I think tariffs forez better words, I think
Speaker 3: that's one thing that is clearly being discussed at the moment.
Speaker 3: So if you don't allow any Chinese evs onto the
Speaker 3: US market, which is seemingly the direction we want to take,
Speaker 3: then by definition you're giving your domestic car manufacturers a
Speaker 3: bit of breathing space to develop your own industry. The
Speaker 3: DOE is also looking at different ways to boost nith
Speaker 3: nickel supply, so there's a lot of focus, for instance,
Speaker 3: on the recycling side of things. There's also a lot
Speaker 3: of focus now on assets outside the Chinese supply chain.
Speaker 3: I think there were envoys from the US government in
Speaker 3: Indonesia to discuss a limited free trade agreement with Indonesia too,
Speaker 3: So there's a lot of movement, but it's not impossible,
Speaker 3: and I think there will be solutions to the shortfall
Speaker 3: of critical materials that we do face to some extent
Speaker 3: on the way to a net zero But both Yes
Speaker 3: and Europe do have a fair bit of catching up
Speaker 3: to do in the coming years.
Speaker 2: Right now, so obviously with the Inflation Reduction Act, but
Speaker 2: also the rise of Tesla and others. You know, there's
Speaker 2: more of a domestic battery industry. In fact, I think
Speaker 2: we talked to the CEO of one of the companies
Speaker 2: several months no VANX. We're US based battery companies, startups
Speaker 2: or various stages in development. Where are we right now
Speaker 2: sourcing most of our sort of critical components for them,
Speaker 2: or critical minerals or critical elements for batteries.
Speaker 3: Look, there is an existing NICO market. Actually, yeah, there's
Speaker 3: an existing NICO market.
Speaker 2: Actually, but where do we get where do we import
Speaker 2: it from? What are the big export or exporters to
Speaker 2: the US.
Speaker 3: So when you're looking at the key NICA producing countries
Speaker 3: outside Indonesia and China, Brazil, that's Canada, Australia as well,
Speaker 3: the letter two actually have got a green and with
Speaker 3: US in place, I think it's the question really comes
Speaker 3: more pressing when you're looking five, six, seven, eight years out.
Speaker 3: The less cars of the combustion engine you're putting on
Speaker 3: the road, the more pressing it then becomes to actually
Speaker 3: make sure that you have got the raw materials available.
Speaker 3: And again taking a step back, what we're seeing actually
Speaker 3: at the moment is in the Western world that the evs,
Speaker 3: the pure battery electric vehicles are actually downgraded a little bit,
Speaker 3: so we actually have to take down our penetration rates.
Speaker 3: What we're seeing more is kind of that intermediate solution
Speaker 3: where you're putting hybrid or plug in hybrid electric vehicles
Speaker 3: onto the road, and for those, for instance, you do
Speaker 3: need less of the critical raw materials, so that buys
Speaker 3: you effectively time potentially to build up more of a
Speaker 3: supply chain. That building up a supply chain, I think
Speaker 3: is right now the key focus that we have in
Speaker 3: both US and in Europe.
Speaker 1: So just broadening out the metals discussion. You are, of
Speaker 1: course the head of metals research for BOAS, so we
Speaker 1: should ask you about some other things going on as well.
Speaker 1: But it seems to me like one of the major
Speaker 1: stories in this market has to be volatility recently, and
Speaker 1: perhaps copper is the best example of that. So we
Speaker 1: had Jeff Curry on a few weeks ago talking about
Speaker 1: how long copper was the trade of a lifetime, and
Speaker 1: since then I think it's down what like ten percent.
Speaker 2: Something like that.
Speaker 1: I would say like a few weeks is probably not
Speaker 1: the timescale he was thinking of in terms of trade
Speaker 1: of a lifetime. But there's definitely been a lot of volatility,
Speaker 1: and it feels like there's a weird dynamic going on
Speaker 1: where like part of the thing causing volatility is the
Speaker 1: restriction in is the type physical market basically, so we're
Speaker 1: seeing these big swings up and down, partly because we
Speaker 1: need more of this stuff. What's going on there.
Speaker 3: So Coppa is really really different to Nika. On Nica,
Speaker 3: we had the reserves and the resources, the deposits in Indonesia.
Speaker 3: On copper, you don't. It's a very mature market. Some
Speaker 3: of the best assets or mines that we actually have
Speaker 3: in the world have been running for decades and it's
Speaker 3: very hard to find really good new assets. In fact,
Speaker 3: when you're looking at some of the projects that are
Speaker 3: currently in the pipeline, just to highlight the difficulty and
Speaker 3: bring those on lines, some of those weird discovered almost
Speaker 3: thirty years ago, so it took you almost two generations
Speaker 3: to bring them to the market, and so we now
Speaker 3: facing an almost empty project pipeline. But doesn't help either
Speaker 3: on the copper side, is that during the past ten years,
Speaker 3: in the past decade, we had a bear market. Effectively,
Speaker 3: I bet you in twenty fifteen I would not have
Speaker 3: been sitting here. It was because there was not a
Speaker 3: lot of interest in the metals in the metal site.
Speaker 3: And so think about it, shortly after that or doing that.
Speaker 3: During this ten years, Glenco almost went bankrupt. How did
Speaker 3: the miners react to that cut? Kapex and their equation
Speaker 3: there is very simple. You don't spend, you don't produce
Speaker 3: further down the line, and that's not even something that
Speaker 3: the Chinese government through a strategy industrial policy can resolve.
Speaker 3: If you don't have the assets, you just cannot produce.
Speaker 3: And so you're now effectively in a situation their copper
Speaker 3: supply growth is really tailing off. It's coming down, but
Speaker 3: structurally you have got much higher copper de mincros. Over
Speaker 3: the last two decades, potential copper demandross was maybe two
Speaker 3: percent out until twenty fifty, we can justify annual copper
Speaker 3: demand rows of four percent, So twice twice is high,
Speaker 3: and you don't have the supply grows, and that's I
Speaker 3: think where then the volatility then effectively comes in because
Speaker 3: if you don't have the safety buffer, so the inventories
Speaker 3: that can help even out shortfalls here and there, that's
Speaker 3: what ultimately creates grades at volatility. The one point I
Speaker 3: would make about some of the calls that we've seen
Speaker 3: in the copper market, like I've seen fifteen thousand I've
Speaker 3: seen forty thousand dollars. That's all fine, I think if
Speaker 3: it's a long term you, but it also is a
Speaker 3: little bit of a disservice to the industry. To your point,
Speaker 3: sim I'll give you a very simple if it's a
Speaker 3: very simple example of say over the last two to
Speaker 3: three weeks, for instance, so we've had it's more on
Speaker 3: the option space, but we've had an explosion in interest
Speaker 3: on the call side, or calls got really really expensive.
Speaker 3: But then we also saw how the buying started to
Speaker 3: subside a little bit. And so what has been a
Speaker 3: very popular position recently in the last few days is
Speaker 3: actually selling copper upside through those calls. Now, if you
Speaker 3: believe in copper hitting forty thousand dollars per ton, immanutely
Speaker 3: you're not taking that position. So I think with all
Speaker 3: of those bullish calls, it is important that we write
Speaker 3: size them and that we cavey at them, because if
Speaker 3: you're just saying, oh, we're bullish copper and it's going
Speaker 3: to the moon, you're missing an awful lot of profit
Speaker 3: along the way. And the point that you just make, yes,
Speaker 3: it looks good copper for a while, but right now
Speaker 3: we're digesting that gains. It's those periods I think where
Speaker 3: you see this location to the market that you actually
Speaker 3: want to trade. So I think we need to take
Speaker 3: a little bit of a more nuanced view on the
Speaker 3: market then just saying oh, look, coppa is going through
Speaker 3: the moment.
Speaker 2: I think the tricky thing with trying to understand where
Speaker 2: copper is going is just the sort of sheer physical
Speaker 2: reality of there's a lot of demand. As you said,
Speaker 2: the demand growth is going to basically effectively double, and
Speaker 2: there's this sort of empty project pipeline, and so you're like, well, yeah,
Speaker 2: of course copper has got to go to the moon.
Speaker 2: How does that get resolved? Is there a price which
Speaker 2: new projects start to like, all right, we got to
Speaker 2: start putting shovels on the ground, or to your point,
Speaker 2: is it a matter of we just need less price
Speaker 2: volatility rather than a specific price signal itself, and then
Speaker 2: we can start to figure out So it sounds like
Speaker 2: something has to resolve.
Speaker 3: That it would be good if you had both, But
Speaker 3: the problem is I think more than rather than having
Speaker 3: less price volatilely we're going to get more price volatility
Speaker 3: going forward. The price I think that that we're hearing
Speaker 3: a lot from the miners that we need to justify
Speaker 3: investment in new minds is minimum twelve thousand dollars per ton,
Speaker 3: but then Glencore is talking more towards like thirteen fourteen
Speaker 3: thousand dollars per ton. Then just to put a reference
Speaker 3: to that, right now, we're trading at ten thousand dollars
Speaker 3: per ton, and then the whole problem becomes, well, if
Speaker 3: the miners really eight for prices, hit twelve or thirteen
Speaker 3: or fourteen dollars fourteen thousand dollars per ton and then
Speaker 3: start investing, you have a lead time, so you're not
Speaker 3: going to resolve those shortfalls imminently. And so did The
Speaker 3: question on what resolves the potential shortfalls on the copper
Speaker 3: market is a very tricky one. We've seen during the
Speaker 3: doing the energy crisis around the Ukraine War. What happened,
Speaker 3: so we had in the run up to the Ukraine War,
Speaker 3: we had a very strong copper price rally and that
Speaker 3: made many renewable projects loss making basically, so we've actually
Speaker 3: seen how the deployment of green energy slowed down meaningfully,
Speaker 3: and that's what I would call demand destruction ultimately, So
Speaker 3: and we said we've been saying that for a while.
Speaker 3: With the current technology that we have, with the current
Speaker 3: investment that we see in the Mind Project pipeline, it's
Speaker 3: very very hard. It's almost impossible to get to net
Speaker 3: zero by twenty by twenty fifty. So something has to give,
Speaker 3: I think ultimately, and you see that in the New
Speaker 3: Slow almost daily now. As I think when we put
Speaker 3: the initial estimates out, we basically said that it was
Speaker 3: a few years back that limiting global warming to one
Speaker 3: point five degrees celsius is going to be very hard.
Speaker 3: The best you can do is potentially one point eight
Speaker 3: one point nine degrees, and look like it very much.
Speaker 2: Lead point three is a big and that copper is
Speaker 2: a big part of that story.
Speaker 1: Copper.
Speaker 3: You need copper in virtually every technology when you're looking
Speaker 3: at a kind of what the energy transition means. So
Speaker 3: the decarbonization story, we're effectively talking about electrifying the global economy.
Speaker 3: So we need power generation, transmission, distribution, and then all consumption.
Speaker 3: All of that is in the elect in the form
Speaker 3: of electricity, and you can't do those technologies without copper.
Speaker 3: Copper is effectively ground zero of the energy transition.
Speaker 1: Yes, so I mentioned in the intro that the Indonesian
Speaker 1: nickel story is something that kind of flew under the
Speaker 1: radar for me. Copper, not so much. We've done a
Speaker 1: few episodes. You see the headlines every day now, as
Speaker 1: you mentioned, But what other things should we be aware
Speaker 1: of in the metals market right now? Like what could
Speaker 1: we possibly be missing or what do you get the
Speaker 1: sense that other people are missing?
Speaker 2: You better give us a good answer, especially after having
Speaker 2: especially after having shamed us for not talking about So okay,
Speaker 2: we better, you better give us something.
Speaker 3: An you're in good company. Then let me let me
Speaker 3: tell you that I think that was that that was
Speaker 3: a global theme. But I think what what really needs
Speaker 3: to happen. I think we can go into the policice
Speaker 3: policy sphere, but we can also go into the end
Speaker 3: of the commodity fundamental sphere of fences. When you're looking
Speaker 3: at E S T for instance, E s T is
Speaker 3: very important, clearly, I think the energy transition is e
Speaker 3: actively all about EESG. But there is a little bit
Speaker 3: of a market failure there as well at the moment,
Speaker 3: because we just discuss it. You can't have the energy
Speaker 3: transition without actually taking the metals out of the ground.
Speaker 3: But from an ESG perspective, it is still hard for
Speaker 3: a lot of investors to actually invest in mining assets.
Speaker 3: So you want to have the energy transition, but you
Speaker 3: don't want to have the mining. Well, something has to
Speaker 3: give give here, So that's that discussion is actually evolving.
Speaker 3: I think the UPO, the US in the U actually
Speaker 3: putting more effort into developing mining assets is certainly helping
Speaker 3: helping that discussion. That's one thing. The other thing that
Speaker 3: I would say is the energy transition clearly is a
Speaker 3: game change for the metals. In my view. There are
Speaker 3: some metters we talked about them at the outset, like
Speaker 3: the battery romantials, so lithium, cobalt, innicate that look a
Speaker 3: little bit better supplied that might not really quite as much.
Speaker 3: But then there are others like copper and aluminum for instance,
Speaker 3: that really look much that really look much stronger one
Speaker 3: a fundamental perspective, so you do get actually relative value
Speaker 3: there as well. And I think the third point that
Speaker 3: I would make is innovation. I think we need to
Speaker 3: see or evolution. We need to see different approaches to
Speaker 3: making sure that we mitigate the shortfall in those commodities
Speaker 3: that are actually under supplied. Recycling scrap that is fin
Speaker 3: into something that is becoming likely much more important going
Speaker 3: forward as well, and is one of the least transparent
Speaker 3: segments of sectors of the metals industry at the moment.
Speaker 1: Yeah, isn't it one of those industries where people still
Speaker 1: like have to call up the junk yards and ask
Speaker 1: for the latest pricing.
Speaker 3: Yeah, I can, I can. I should tell you a
Speaker 3: funny story about a funny story about there was a
Speaker 3: few years back we went to visit a scrap yard
Speaker 3: and there was a whole pile of metal lying somewhere
Speaker 3: in the corner, and so we asked the master guy
Speaker 3: in the scraplut what that is, and he said, well,
Speaker 3: it's a dowry for my daughter. I'm saving that for
Speaker 3: my daughter. So it is a very arcane industry to
Speaker 3: some extent, still a lot of smaller and mid sized
Speaker 3: companies operating in there, and certainly scope to evoive the
Speaker 3: way the industry the industry works. I think the other
Speaker 3: thing I think that that would certainly help there beyond
Speaker 3: just that is and be seeing that increasingly as well,
Speaker 3: is that governments focus really on recycling rates. How do
Speaker 3: you make sure that you're actually getting recycling rates up.
Speaker 3: Do you have designed products differently to make it easier
Speaker 3: to recycle them. Do you have to compel manufacturers to
Speaker 3: actually take spend products back and recycle them. So there's
Speaker 3: a whole lot of development on that front as well.
Speaker 3: I think that would certainly have the recycling space too.
Speaker 2: I just have one more question, and you mentioned the
Speaker 2: sort of I don't know, market failure, maybe market harmonization problem,
Speaker 2: in which in order to have the energy transition you
Speaker 2: actually have to invest in a lot of dirty businesses.
Speaker 2: And we've done some episodes in the past, or at
Speaker 2: least one that I recall about the amount of water
Speaker 2: consumption of copper minds in Chile and some of the
Speaker 2: backlash there is there a growing issue. And I'm curious
Speaker 2: also in Indonesia and the local environmental impacts of all
Speaker 2: this nickel production. Is there any sort of backlash happening
Speaker 2: there in the vicinity of these and like what sort
Speaker 2: of the general state of play on that stuff.
Speaker 3: Yeah, I think that's certainly when when I said before
Speaker 3: that from an easy standpoint, it's still hard to understand
Speaker 3: investing in mining assets. I think mining historically has not
Speaker 3: been the cleanest of our industries. But I think the
Speaker 3: miners are trying are trying very hard to mitigate that.
Speaker 3: So when you're looking at water being used in the mines,
Speaker 3: I think there's an effort, for instance, to actually have
Speaker 3: more of a run around system, so the water that
Speaker 3: is once in the mind to produce a copper, you're
Speaker 3: effectively cleaning up and then and then putting back into
Speaker 3: the industry. Some operators that are better than others. What
Speaker 3: we're seeing increasingly is that the better the operators are,
Speaker 3: the better the better the miners are in engaging this
Speaker 3: local communities, on the environment, on social on the social compound,
Speaker 3: the more likely it is to get an interrupted supply.
Speaker 3: So I think the industry over the last ten to
Speaker 3: fifteen years has certainly gone a little bit through a
Speaker 3: learning curve and has been trying to become a better
Speaker 3: corporate citizen.
Speaker 1: All Right, Michael Vidmer, thank you so much for coming
Speaker 1: on odd lots and making sense of what's been going
Speaker 1: on in the nickel market. Five cents exactly. No, thank
Speaker 1: you so much. That was so much fun.
Speaker 3: Thank you very much, Joe.
Speaker 1: I've really enjoyed that conversation. That was such anclear explanation
Speaker 1: of what's been going on.
Speaker 2: It was so fun. I love Michael.
Speaker 3: We have to have a Yeah.
Speaker 2: I could have talked to him for like four hours.
Speaker 3: Yeah.
Speaker 1: I thought his point about the market failure of ESG
Speaker 1: was a good one and probably one that is becoming
Speaker 1: more common now than it was a few years ago.
Speaker 1: But I think one of the problems with ESG in
Speaker 1: its early the conceptualization is that no one ever really
Speaker 1: figured out like do you want to engage with the
Speaker 1: dirty industries and make them better or do you want
Speaker 1: to stay away from them completely and thereby cut off
Speaker 1: their access to financing and make them go away in
Speaker 1: their totality. And I think, you know, a few years
Speaker 1: on from all of this, we're kind of seeing the
Speaker 1: result and the idea that you can get this tension
Speaker 1: where you need to actually engage in a dirty industry
Speaker 1: in order to promote the clean energy transition, and so
Speaker 1: stranding that particular asset is problematic in some ways, let's
Speaker 1: put it that way.
Speaker 2: Yeah, I mean it's always seemed to me like this
Speaker 2: term ESG means different things to different people. Some people
Speaker 2: just don't want to invest in energy in industries that
Speaker 2: they perceive as problematic. In some point. Others from a
Speaker 2: more policy oriented standpoint, have these set of goals. Sometimes
Speaker 2: those goals and the interests of investors are aligned, well,
Speaker 2: sometimes not so much. I'm just astounded how fast I
Speaker 2: guess I, like I said in the beginning, one of
Speaker 2: the few things I knew about the nickel market.
Speaker 1: I love that you have three factoids about the nickel market.
Speaker 1: And one of them is actually a very sophisticated point
Speaker 1: about the episode that we just had.
Speaker 2: Well, I remember like twenty twenty one, twenty twenty two,
Speaker 2: you know, like there was all those like polychrisis stuff
Speaker 2: and like Adam Two's and all those guys, and like
Speaker 2: one of them at some I probably clicked on an
Speaker 2: article about like Indonesia aiming to capture more downstream value,
Speaker 2: and I like, choke, you know, stroke my chin as.
Speaker 2: That's very smart. Just really capture more of the value
Speaker 2: coming out of the ground.
Speaker 1: And so like just one of those things that were
Speaker 1: at my next cocktail party, all talking about Indonesia's attempts
Speaker 1: to capture the downsta.
Speaker 2: Indonesian nickel markets at are real crossroads, and now they're
Speaker 2: trying to capture more of the value add rather than
Speaker 2: just below margin export But then the other thing is
Speaker 2: I just did not realize how recent Indonesia's rise was
Speaker 2: at all. If I would have guessed so Indonesia's always
Speaker 2: made the big nickel exporter and now they're shifting, I
Speaker 2: did not realize that this is basically a story of
Speaker 2: the last decade.
Speaker 1: It is phenomenal. The other thing that sort of hit
Speaker 1: home in that discussion with Michael just then was the
Speaker 1: technology aspect of it, by which I don't mean EVS,
Speaker 1: but I mean like the actual processing technology of nickel
Speaker 1: and the fact that that's been driving a lot of
Speaker 1: the increase in production that China like kind of cracked
Speaker 1: this new model for doing it and then just invested
Speaker 1: a ton in it.
Speaker 2: Well, you know, one of the conversations we did a
Speaker 2: couple months ago or I guess a month and a
Speaker 2: half ago or whatever, we did that trip to North
Speaker 2: Carolina and one of the companies that we talked to
Speaker 2: is part of our trip with Tom Bark and that company, Unify,
Speaker 2: And like one point that has been very lodged in
Speaker 2: my brain was just the CEO of Unified talking about
Speaker 2: the huge edge that accrues to Chinese producers of things
Speaker 2: like advanced textiles due to the sheer scale of the
Speaker 2: domestic petrochemical industry that exists in China. And I realize
Speaker 2: that's not that's petrochemicals, not metals, but it does feel
Speaker 2: like the sheer scale of refining capacity for petrochemicals, for
Speaker 2: critical minerals, et cetera in China is just a huge
Speaker 2: part of the story here. And whoever is access to
Speaker 2: that cheaper supply is obviously in a good position.
Speaker 1: Well, it certainly seems to be a big advantage in
Speaker 1: something like ev manufacturing, that's for sure. All right, shall
Speaker 1: we leave it there.
Speaker 2: Let's leave it there.
Speaker 1: This has been another episode of the Odlots podcast. I'm
Speaker 1: Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2: And I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 2: Follow our producers Kerman Rodriguez at Carman Arman dash Ol
Speaker 2: Bennett at Dashbot and Keilbrooks at Keilbrooks. And thank you
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