The war in Ukraine is driving up prices for everything from oil and wheat to rare minerals, and the emerging electric vehicle market could soon feel the shockwaves.
The price of nickel, one of the key minerals needed to produce stainless steel and lithium-ion batteries, saw an unprecedented surge Tuesday amid fears that Western sanctions could cut off Russian supplies of the crucial commodity.
Yet much of today's increase is the result of a short-squeeze, according to Bloomberg. As the price soared, Chinese billionaire Xiang Guangda, known as "Big Shot," was forced to buy up large quantities of nickel to cover a massive short position.
As a result, nickel briefly traded for $100,000 per ton in the morning, before the London Metal Exchange stepped in to suspend trading. The spike, which is already being called one of the largest-ever in the metals market, followed a 60 percent price jump on Monday, which brought the price to a 15-year high of $40,000 a ton.
Putting aside the financial shenanigans that produced today's short squeeze, supply constraints due to sanctions are still a major concern for battery manufacturers. While Russia produces just 6 percent of the global nickel supply, it's a leading producer of the higher-purity nickel that is most suitable for lithium-ion batteries.
As the war continues and Western powers such as the U.S. and European Union take steps to cut off Russia from their economies, some fear that nickel and other commodities will get harder and harder to come by — right when they're needed most.
"There has to be some very serious continuing conversations about the supply chain," said Lewis Black, CEO of Almonty Industries, a tungsten mining operation that supplies inputs to electric vehicle battery manufacturers. "If you don't diversify, this type of nonsense is going to be the norm rather than the exception."
One way to diversify the supply chain is to develop resources closer to home, which is what one North American-based firm, Electra Battery Materials, is trying to pull off with plans to build a cluster of cobalt and nickel processing facilities north of Toronto.
"One key effect of the situation in Ukraine is the localization of supply chains," said Michael Insulan, vice president of commercial at Electra Battery Materials Corp. "The key here is not to be reliant or subject to future geopolitical issues."
Electra's plants will produce intermediate inputs for batteries such as nickel- and cobalt-sulfate. It's also working on developing a cobalt mine in Idaho's copper belt, but that project is a few years out. In the meantime, Electra will continue sourcing raw cobalt from the Democratic Republic of Congo, the world's biggest cobalt exporter.
As for raw nickel, the company is trying to develop alternatives using new processing methods, but in the meantime, it will continue to rely on imports from other countries.
"We may source nickel metal internationally, but the idea here is to get a nickel feed from North America, processed in North America, for North American battery cells, which in turn are for North American electric vehicles," Insulan said.
Given Electra's commitment to meeting Environmental, Social, and Governance (ESG) standards, however, its short-term options for imports are somewhat limited.
The company won't source from Indonesia, for instance — the country with the fastest-growing nickel exports — because its lower-grade nickel pig iron is highly energy-intensive to process into the nickel-sulfate needed for batteries.
Insulan noted that North America does have nickel resources of its own, but there are a number of barriers to developing them into active mines. He added that higher prices — not $100,000 per ton high, but higher — could encourage new investment.
Black is more skeptical about new mines opening in the West: "It's been generally accepted for years that the supply chain is extremely fragile," he said. "It relies on a very small number of players for raw materials because ultimately nobody in the — let's put it in inverted commas — 'the civilized world' want a mine in their backyard."
This talk of mineral independence came as President Joe Biden on Tuesday afternoon announced that the U.S. will ban Russian imports of oil. Once considered off-limits — given Russia's outsized role in world energy markets — the move is a major escalation of the West's economic war against Russia.
While the U.S. is much less dependent on Russian fossil fuel than Europe, Russia still made up 8 percent of oil and petroleum imports in 2021, and Biden is readying U.S. consumers for more pain at the pump. "Defending freedom is going to cost," he said.
So far, Russian metal exports haven't gotten a similar treatment, but the possibility looms as the war in Ukraine intensifies and Russia shows few signs of backing down.
Black cautioned that sanctions have limits, however, and for the most part will only shift the supply to other economic rivals such as China, which already dominates the market for battery materials, offering a backdoor to purchase Russian commodities.
He added that the problem of relying on other countries remains, leaving open the possibility of other countries weaponizing their access to key commodities.
"What makes you think that China wouldn't be capable of that at some point in the future, and what alternative would you have if they did?"