'It makes no sense for Canada': Industry rebuffs idea of joining an OPEC-like alliance for nickel
Canada's nickel producers are hoping to differentiate their products as cleaner and purer
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Mining industry veteran Mark Selby has for years been telling anyone who would listen that the production of nickel — a metal key to batteries and the energy transition — was getting so concentrated in just a few countries that a cartel-like organization to control supply was inevitable.
A slide in the PowerPoint deck he’s shown at investment conferences since 2019 predicted an “ONEC” — the Organization for Nickel Exporting Countries — consisting of Indonesia, the Philippines and Russia, the top three nickel producers.
Together, the most recent version of the slide notes, those three countries accounted for 60 per cent of nickel production in 2021. That’s more than the 54 per cent of global oil supply that the Organization of the Petroleum Exporting Countries (OPEC) produced at its peak in 1973.
What Selby never predicted is that Canada would be invited to join such an organization, as reportedly happened in Bali last week when an Indonesian government official pitched federal industry minister Mary Ng on the idea.
Although managing nickel supplies would likely benefit all producers by elevating global prices, he said Canada’s nickel producers are hoping to differentiate their products as cleaner and purer, which is a marketing strategy that would be undercut by an alliance with other nickel-rich countries to control supply.
“It makes no sense to have Canada involved, and it makes no sense for Canada,” said Selby, chief executive of Toronto-based Canada Nickel Co., which is exploring for nickel in northern Ontario.
Canada accounted for six per cent of global nickel production in 2020, which is a far cry from its former No. 1 position in the mid-1960s, when it accounted for 80 per cent.
Today, Indonesia is the nickel powerhouse, accounting for 39 per cent of global supply in 2021, more than triple its nearest competitors, the Philippines, which accounted for 12.8 per cent, and Russia at about 11 per cent. New Caledonia controls about eight per cent while Australia was about on par with Canada.
Indonesia and the Philippines may dwarf Canada in terms of the sheer volume of nickel produced, but Selby said that misses a larger transformation taking shape in the Canadian sector, where a century’s worth of metallurgical research and investment in technology allows for a bespoke nickel product, which could attract electric-vehicle makers looking for cleaner materials for their batteries.
The nature of that transformation is encapsulated by what’s happened in Sudbury, Ont., the historical capital of Canada’s nickel sector and home to 160,000 people located a four-hour drive north of Toronto.
Between 1905 and 1966, mines in Sudbury produced more than half the world’s nickel, according to the United States Geological Survey.
Gradually, however, Sudbury’s dominance on both the global and national scales has ebbed. In 2020, Sudbury still produced 62,000 tonnes of nickel, about 38.8 per cent of the country’s total, but Quebec produced almost as much — 55,000 tonnes. Newfoundland and Labrador produced 33,000 tonnes while Manitoba, another historical nickel leader, produced 14,000 tonnes.
A giant smokestack, measuring more than 100 feet in diameter at its base and 1,250 feet in height, loomed over Sudbury for decades. Now, Vale Canada Ltd., its owner, is dissembling the pipe, which illustrates a big change in the industry, Selby says.
Just as Canada’s dominance of global nickel markets has changed, so has the technology of producing the metal. Smaller stacks, combined with technology that can smelt raw nickel concentrate into refined products, will now do the trick.
Electric vehicle rampup
Selby, who previously worked in Sudbury as head of strategy at Inco Ltd., a Canadian mining giant purchased in 2006 by Brazil’s Vale S.A. for $19.4 billion, said he was “sad” to see the stack come down.
But he said it echoes the larger emerging story about Canadian nickel, which is seeing new demand — beyond steel plants, its traditional destination — as a primary component in battery cathodes, which require exceptionally pure nickel.
Automakers from Tesla Inc. to Volkswagen AG have begun investing in mining companies, sensing a potential shortfall in critical minerals such as nickel as they ramp up EV production. They also see a chance to lower the GHG profile of their vehicles by investing in projects close to their end markets.
“Today, we want to go much deeper into the supply chain,” Pierre Boutin, chief executive of Volkswagen Canada, said. “How credible can you be today if you don’t know for sure the GHG impact of a vehicle through years of ownership?”
For this reason, Boutin said VW is not only contemplating investments in Canadian mining companies, but has also begun recruiting people in Canada who understand the critical mineral supply chain.
Investment in Canada’s nickel sector, as well as other critical minerals needed for EVs, also received a shot in the arm from the Inflation Reduction Act in the United States, which ties billions of dollars in tax credits for EVs to requirements that their batteries be sourced from North American materials — a potential key advantage for Canadian nickel producers.
“The big opportunity here is we have nickel resources and we’re in the midst of one of these crazy industrial transformations that happens every 50 to 100 years,” Selby said. “It’s a massive opportunity for us to get a huge amount of investment in the country … and we can do it in a low-carbon, environmentally friendly way.”
Indonesia and the Philippines are experiencing their own nickel transformations, with an explosion in production and refining during the past two decades helping them to dominate the market. But their nickel comes not from sulfide ore, as in Canada, but from laterite ore.
Western producers had ignored those deposits because of challenges refining the ore into usable products, but in recent decades, China’s economic growth brought in waves of investment, particularly in Indonesia, and helped solve some of these issues.
As a result, Indonesia’s nickel could possibly be used for EV batteries, but it may be more expensive to refine to the required level of purity, and that country’s reliance on coal power would raise the greenhouse gas (GHG) emission profile of the nickel.
“Going forward, there will be a more rapid growth for nickel in batteries,” said Patricia Mohr, an economist who was previously at the Bank of Nova Scotia, adding that Indonesia still produces low-cost nickel that dominates the stainless-steel markets. “(Canada is) going to have a competitive edge going forward in nickel because the carbon footprint of its current production is considerably less than Indonesia.”
Of course, exactly how much of the increased demand for nickel will come from batteries is difficult to predict. It will depend on the pace of EV sales as well as shifts and breakthroughs in battery chemistry formulations.
Nonetheless, analysts at Goldman Sachs Group Inc. in a note earlier this year said “extreme tightness … (is) already here.” In other words, demand for battery-grade nickel continues to match or exceed supply.
“The current fundamental outlook for nickel points to a persistent and substantive shortfall in class 1 supply,” the authors said.
Against this backdrop, many analysts see two nickel markets emerging: one for stainless steel and another for EV batteries. In the latter category, the carbon footprint will be closely watched by automakers, so cleaner nickel may fetch a higher price.
For this reason, Mohr said she does not believe it would be in Canada’s interest to form an OPEC-like alliance with Indonesia and other countries to control nickel supply.
“I think that we have a competitive advantage as Canadians, in producing low-carbon nickel and specifically with new projects being developed for the battery market, not necessarily for stainless steel,” she said.
An earlier version of this story incorrectly reported that Trade Minister Mary Ng was pitched on the idea of nickel cartel in Egypt. Ng was approached by her Indonesian counterpart at the G20 summit in Bali.
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