If you carry change in your pocket, you will likely have a nickel or 5 cent piece, unlike the other coins the nickel is actually a mineral that is mined and worth billions of dollars. In many manufacturing productions you often see the use of nickel. Partly because when there was great discoveries made in North America, the companies that grew from the discoveries had to find more uses for the mineral or prices would not go up. The companies did and there is steady demand for the mineral. Nickel is one of the minerals in use for EV vehicles which means every time governments mandate cleaner energy, nickel prices have risen based on supply and demand, but something is changing.

In an article by Niall McGee of the Globe and Mail, the expected demand has materialized but the price of nickel has fallen 30% to $17,500 a tonne, what is happening?

Chinese companies own mines in Indonesia and are producing nickel as if the demand is even greater than expected. According to data from the Bank of America, Indonesia’s share of the nickel market has risen from 7% to 55%.

The rise in production is hurting the Australian mining industry. The government is offering a rebate to companies – over the next 18 months mining companies in the state of Western Australia will be eligible to receive 50% of the royalties paid if the price of nickel trades below $20,000 a tonne.

The large mining companies are suggesting the Chinese companies are not following environmental regulations and are not following good stewardship of the land.

In the mining business or any commodity business when the price falls, there is a desire to decrease production till the price rises again. The Australian companies are following that procedure. The Chinese have stepped up production because they have a different strategy. They want to establish dominance in minerals related to EVs such as lithium, cobalt, graphite and nickel.

The Chinese have a very highly vertically integrated supply chain with Chinese producers owning mines in Indonesia, refining the nickel in both Indonesia and China and selling processed nickel to the EV industry. It is noted Chinese company BYD became the largest EV seller beating out Telsa.

The other aspect is over the past decade, the Chinese revolutionized the steel manufacturing process by producing alloy cheaply using low grade Indonesian nickel (nickel pig iron or NPI) instead of the high-grade nickel found in Australia and Canada. The Chines have found a method to use NPI for use in EV battery manufacturing.

The downsize of Chinese innovations is to the damage to the environment. Steel made with NPI is more carbon intensive than steel produced with high-grade nickel. In addition to process the NPI takes a great deal of power and Indonesia is using vast amounts of metallurgical coal. This has resulted in the mining companies pushing the developed countries to penalize the Chinese with tariffs and ESG scorecards on how the final product is actually produced.

Linking to dividend paying stocks, in the world economy, while everyone believes in free markets, the reality is all companies hope for reasonably stable prices which will allow companies to make profits to pay dividends. There is always a grey area when the competition begins to change the industry, whether it is for the better or worse. It is good innovation allows NPI to be used, however that changes the demand for high grade material, which can be sold at higher premiums. Large organizations tend to use government regulations to hurt the competition and help themselves, which is why sometimes it is a grey area.

There are more questions than answers, till the next time – to raising questions.