Supply disruption leaves MHP nickel refiners high and dry

The lithium ion battery industry has long viewed mixed hydroxide precipitate (MHP), an intermediate product of nickel laterite ore which is processed via a hydrometallurgical route, as the key source of battery suitable nickel to feed surging demand from electric vehicles (EVs).

Its prominence as the future of nickel supply for the battery industry was sparked in 2018 when several Chinese companies, including Tsingshan, GEM, CATL and Lygend Mining, confirmed plans to develop a host of new high pressure acid leach (HPAL) operations in Indonesia, outlining significantly lower capital outlays and substantially quicker timelines to production than previous projects.

Whilst these announcements were met with widespread scepticism within the mining industry, considering HPAL’s long and tarnished history of capex blowouts and failures to reach nameplate capacity, it was hard to completely write off the ingenuity of Chinese company’s on delivering these promises.

Exemplified by Tsingshan, which had seen considerable success in commercialising nickel pig iron (NPI) for the stainless-steel industry in the mid 2000s, a process route which had long been viewed in the West as uneconomical.

Since 2018, a growing number of new HPAL operations have been announced in Indonesia to feed mounting demand projections, with Benchmark’s Nickel Forecast now tracking nine potential projects in the pipeline out to 2030, equivalent to up to 600,000 tonnes of nickel.

Indeed, it is not only Chinese companies that have been trying to secure a piece of the pie. First Quantum Minerals brought the Ravensthorpe mine in Western Australia – idled in 2017 in response to nickel’s low-price environment – back into operation in May 2020, as the company looked to ride the wave of growing demand from the battery sector.

Moreover, Vale announced that as part of plans to offload the Goro mine in New Caledonia it would be streamlining the operations flowsheet towards MHP to target the lithium ion battery industry, making the mine more attractive proposition to potential suitors. This process was successfully completed in H2 2020.

As additional supply entered the market from mid-2020 onwards, MHP payables slipped below historical levels in Q3 2020, averaging at 78%, as new operations moved to undercut pricing to secure greater market share.

For consumers, the benefits of utilising MHP as opposed to traditional nickel metal were clear: it costs less to convert to nickel sulphate, it has the presence of cobalt as a by-product, and it is set to benefit from a significant growth in supply over the coming years.

However, as the battery supply chain geared up to begin receiving greater quantities of MHP in 2021, the short-term supply outlook changed dramatically in a matter of weeks in late 2020.

Goro closure adds to COVID-19 woes

The first signs of trouble came in November 2020, as Lygend Resources officially confirmed the much-rumoured news that commissioning of the PT Halmahera Persada HPAL plant in Indonesia would be delayed by a further six months.

Whilst the delay had long been expected in the market, caused by COVID-19 related disruption and a change in tailings management at the HPAL projects in Indonesia, its confirmation was quickly followed by a forced, unexpected closure of the Goro operation in New Caledonia in December, which was rocked by widespread protests after Vale announced it had reached an agreement to sell its controlling stake in the operation to Prony Resources – a consortium which includes Trafigura as minority shareholder.

The sale has proved to be a political flashpoint in New Caledonia, with pro-independence groups -backing a rival takeover bid – expressing aggrievances over the tender process, which spilled over into violence in the aftermath of the announcement.

Supply disruption came as nickel demand from the battery industry began to skyrocket in response to surging EV sales globally, leaving consumers scrambling for alternative feed to fulfil their contractual obligations.

Several refiners in China reported being forced to scale back nickel sulphate production in response to a lack of available feed, creating a further drag on the avalaibility of nickel sulphate supply domestically.

With neither operation able to bring substantial volumes to market during the first half of 2021, the Benchmark Nickel Price Assessment assessed MHP payables (the percentage payable for the nickel content of MHP to the prevailing LME nickel metal price on a metric tonne basis) as rising substantially on supply tightness.

Over the first half of 2021 MHP payable were assessed as averaging close to 88%, an increase of 11% on the latter half of 2020. More specifically the most recent June issue of the Benchmark Nickel Price Assessment saw prices average 90% for the month.

Tightness set to persist despite new supply

Despite confirmation in June that Lygend Resources started shipping MHP to China from its newly commissioned plant in Indonesia, and reports that Prony Resources have now restarted production at Goro in New Caledonia, it appears doubtful that supply tightness will be abated in the near term.

As China’s battery cell production reached a record 15.2 GWh in June, surging demand from the lithium ion battery has helped fuel a dramatic increase in nickel metal imports into China in recent months, with new MHP volumes unlikely to be able to offset this demand step change.

Further to this, the next wave of Indonesian HPAL plants in Indonesia, PT QMB New Materials (majority owned by GEM) and Huayue Nickel & Cobalt (joint venture between Huayou Cobalt and Tsinghshan), are not expected to begin commissioning before 2022 at the earliest.

Indeed, as new MHP supply has flowed into Chinese ports in recent weeks, Benchmark has heard reports that suppliers have pressed consumers for payables close to 100% on spot transactions, indicating a robust sellers’ market.

Although these payables are unlikely to be achieved due to strong consumer reluctance to accept such pricing terms, current dynamics indicate that that MHP prices are set to undergo further upward pressure throughout the remainder of 2021.

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