By Brian Zhao
(Image: creative common license)
The Russian-Ukraine conflict has caused a number of supply chain disruptions in addition to obstructing the flow of goods, driving up product shortages, and creating severe food crises around the world. Even nickel, a relatively available commodity, has undergone unprecedented price changes.
In March 2022, the London Metal Exchange suspended nickel trading due to its wild fluctuations caused by Russia’s invasion of Ukraine, which sent the market surging well over the $100,000 per tonne mark. The drastic increase of this raw material could wreak havoc for several industries that nickel supply is important for, such as stainless steel, magnets and alloys, electronic devices, medical equipment, and energy and power generation.
The shortage of nickel has casted its influence on the electric vehicles industry, as the metal is a crucial component of lithium-ion batteries. The price surge could raise the price of electric vehicles by a shocking $1,000.
According to the Consumer Bankers Association, Russia accounts for 5 percent to 6 percent of the global nickel supply and 17% of high-purity nickel production. Thus, how willing are people operationally, environmentally, and financially to pay for the precious metal?
Since there are very few substitutes for nickel, as compared to its cobalt and lithium counterparts, the demand for it should be relatively inelastic despite its price volatility in theory. However, this is not the case, as many companies have simply halted products and operations that require nickel intake.
For example, according to Rystad Energy, nickel sulfate producers in China have stopped offering the material as the impact of distortion from speculation on shortage-driven price increases is too unclear to rely on in terms of decision making. Analysts at the Royal Bank of Canada provide further insight, as they affirm that “With heightened uncertainty, potential for higher interest rates and lower consumer spending in a high-cost energy environment, demand for metals may come under pressure”.
Furthermore, Kunal Sawhney, Chief Executive Officer at the research firm Kalkine, stated that “Nickel was already in tight supply, and if a large supplier is being taken out from the market, it will have a cascading impact in the near- to medium-term.” This cascading effect has already been set into motion in the past year, as stainless steel manufacturers like Acerinox, a buyer of nickel, has already stopped new incoming orders of nickel due to its high prices according to Bloomberg.
Although the United States has imposed various import bans on a wide range of Russian products and operations, such as banks, state-owned enterprises, and crude oil, the sanctioning on Russian metals has been relatively lenient because the U.S. does not want to look to other large suppliers, such as China. Thus, the industrial metals sector is able to remain afloat. So, the U.S. experienced the largest surge of nickel imports (70 percent as compared to last year), while the European Union only gained 22 percent as compared to last year. .
So given the circumstances, how have these companies adjusted to the inflated nickel prices and sanctions on imports?
Many companies, European ones especially, were forced to reconsider their supply chain position and diversify their partners rather than adhering to traditional suppliers. The nickel and other raw materials crisis has also allowed some companies to reinvent their business models and reevaluate their trade coalitions and partnerships.
Overall, while Russia’s invasion of Ukraine has triggered disruptions in many global markets such as inflating the prices of raw materials that are crucial in certain industrial applications, the main focus should remain on the damages done and the loss of life in Ukraine.