Hello, and welcome to another episode of the All Thoughts Podcast. I'm Tracy Alloway.
And I'm Joe. Why isn'tal Joe?
I have a joke for you, A very special joke.
Go on.
Why did Anglo American write down it's nickel.
Business because it was only worth five cents?
That's so good. That's actually okay. My line was because it was a few cents short of a viable return. But yeah, same thing. That's really good.
But you know what the thing is is my daughter has gotten really into reading me jokes, and I like, she has all these joke books. Like my brain is you can anticipate and like see where these all are going?
All right?
Well, on a serious note, Anglo American rejected that bid from BHP Bulletin, which is something that came up in our conversation with Jeff Curry recently, and as a result of that, it is now undertaking this formal process of selling off a bunch of assets and exploring options for its nickel operations. And one thing that I hadn't realized is just how much the nickel market has actually changed
in recent years. Like I sort of heard some rumblings of it, but I read something recently that really crystallized a lot of what's been happening in that market, and it is phenomenal.
I have to say, I have not given any thought about how much the nickel market has changed, in part because I never at and you point hit some conception of what the nickel market was in the first place. To your way ahead of.
Me on this the one we're not thinking about the nickel market on a like at least weekly basis.
No.
I know like two three things maybe about nickel, which is that a lot of it's from Indonesia. I believe it has some role in batteries or green energy, and so it's kind of an important commodity. What's the third one, Oh, it's also Indonesia. Could Indonesia move further downstream in the process so that it's not just exporting the raw nickel but also exporting some of the actual like or doing some of.
That pretty sophisticated factory. Those about the nickel market.
These are the three facts I'm aware of about nickel. But beyond that, nun like, I could definitely not tell you the number two producing nickel country.
Okay, well, I have a bunch of I definitely.
Don't know why nichol is important in batteries either, so maybe we'll learn that.
Oh that's a good question. Well, I have a bunch of interesting stats that I think will sort of hit home stuff that has happened recently. But you mentioned the role of Indonesia in this market, and this is something that's relatively new. So I think they became the world's top supplier of nickel just in twenty nineteen they overtook I think it was the Philippines and they now supply more than fifty five percent of the world's nickel. So
just insane dominance of that market. And in addition to that dominance in terms of market share, there's also lots of geopolitical intrigue with China. China, by the way, is about to become a net refined nickel exporter, and I think, like just a few years ago it imports, so not exports. It's imports accounted for like fourteen percent of global supply. So it's gone from being like a net importer potentially
to a net exporter in just a few years. Crazy, right, So these are crazy stats, and I feel like we really need to dig into what has happened here. Because there are all these sort of thematic, odd lots ideas embedded in the nickel market. So one is just the idea of structural long term demand for battery related materials that will be important in the clean energy transition. I think nickel is used in hydrogen production. Two, I'm not sure.
But in addition to that, you also have the difficulty of actually building out sustainable business models for getting these strategically important minerals that we need for the transition. And we've seen Indonesia there are a lot of accusations that it's been flooding the market with cheap and low grade nickel, and so that makes it harder for everyone else, like Anglo American to make money on this specificlar nickel. We'll get into that, we'll talk about all the different types
of nickel. So anyway, I just think it's such an interesting story, and it's one that's sort of flown under the radar, at least for me recently, and so I am very pleased to say that we do, in fact have the perfect guests to discuss this. We're going to be speaking with Michael Vidmer. He is the Bank of America head of Metals Research and it was his report that really put this on my radar, and he just laid out some of the numbers that I cited to you a couple months ago, and I'm so glad we
could get him on the show to further discuss this. So, Michael, thank you so much for coming on our box.
Thank you very much for having me.
Should we start with the basic question the Joe already sort of alluded to, what is What is nickel? Because it's not a singular commodity in some respects, It's sort of like oil. There are all these different grades and production uses for it. So what exactly when we say nickel or the nickel market, what are we talking about?
Yeah, so nickel is an element I think that's the first thing I would say. It comes in elementary form out of the Earth. But what normally happens is that consumers use a nickel in processed form. So you have got the refined nickel that you can use, for instance, in your in your buckles, in your belt buckles to make them nice and shiny. You can then use it or another form of nickeline former. It's more like a
chemical in ev batteries. And then there's still another type of nickel is more called nickel pick or ferro nickel that you can then use in a stainless steel mil so it comes in very different forms. What all of those have in common is they have some form of nickel in them.
The batteries is probably the one. You know, belt buckles have been around for a while. Stainless steel has been around for a while. Obviously a lot of interest, particularly now strategically with the energy transition, etcetera, related to batteries. What is the role of nickel in batteries and how crucial is it as one of the you know, we talk about copper, we talk about lithium. How important is nickel?
So we can we can break down the battery sector. When you're looking at China and when you're looking at the world outside China. It's different type of EV batteries that common effactors can use. In China, the EV manufacturers have gone down the route of using what is called
a lithium r and phosphate battery. It used to be a very simple chemistry, didn't have the same kind of energy density, didn't give you the same kind of driving ranges that you would get these other types of batteries, but it was cheap, and I think that's one reason why the Chinese evs are not as expensive as the VEST and evs. The world outside China has relied on a different type of EV battery chemistry, and these batteries contain nickel. They give you more energy density, they give
you a higher driving range as well. And when you're then breaking down the battery, you have got three elements effectively. So you have got an anode and a cathode and between those that's where the electricity flows. And it's the cuthode specifically where you then have the nickel in them.
So where does nicol actually come from? So we mentioned Indonesia already, I think I mentioned the Philippines. But who are the big players in this market? And how is it actually extracted from? Presumably the ground?
Again, very different, very different methods of extracting the nickel. Again, if you're breaking it down a little bit, you tend to have two types of deposits out there. The wond deposit is more in the cola regions, and then you've got another set of deposits that's more in the warmer and wetter regions that you have got a lot of oxidized locks of oxidized or some weather ors a little
bit more difficult to treat the former. So the nickel ores that are in the colder regions like Russia, for instance, are relatively easy to extract. You take them all over the ground, send them through a smellter, refine them, and boom, you have got your your refined nickel. The nickel ores that are in the warmer and wetter regions, because they're oxidized and weathered, they are a little bit more difficult
to process. So the different technologies that you can use as one technology again where you're using fire refining, and then there's another technology where you are using sulfuric acid effectively to lead the nickel out of the out of the oars. When you're looking at the biggest players in the space, it has actually changed a lot. And you
mentioned it already in the at the outset. Historically, when you're looking at it, you had Russia as a big nickel producer, Australia as a big nickel producer, the Philippines were in the fold as well, Canada to some extent too. But what's happened recently is as the energy transition started to take off market participants. We're really focused on increasing nickel supply quickly. And there's one country that's just summed
at the industry in that country is Indonesia. It has the weather type of war, but it has that in abundance, so it's very easy to actually take it out of the ground. And the Chinese went into Indonesia innovative also in the production technologies and managed to take the nickel out that they then needed to drive the EVE battery industry.
So I definitely want to get into Indonesia what they've done to sort of rapidly expand their domestic nickel industry so fast. But just one more question before we get to some of these policy questions and supply. When looking at a total demand global demand for nickel, how much is batteries and how much has the rise of the so called energy transition, how much has that changed demand curves relative to say where we were ten years ago, Like how important is it as a buyer of nickel?
Name massive massively has changed massively? Ten years ago, the battery sector had literally no share in nickel demand. When you're looking at it now, literally all of the demand growths, Like.
How many tons of nicol do we produce? And how many tons would we be producing every year if it weren't for that battery.
So look a few years back, the nickel market was around two million tons. By twenty thirty, it's potentially twice as much, and literally all of the demand rules is then coming through from the EBI battery side. Okay.
So going back to Indonesia, so it seems like they made a strategic decision that this was an industry that they wanted to build out. And I think it started under the former president of Indonesia whose name I am sure I'm going to mispronounce, but Sisilo Bambang you doing? Is that right?
Yes? Okay?
But it's been continued under Djokovidodo. Why did they decide this was an area of strategic or financial interest?
So it was the Indonesians which opened up the country, but ultimately was actually China which drove that development. And I think you see that a lot in the public discussion at the moment. I think the tariffs that President Biden, for instance, imposed on Chinese EV's, I think there is this undercurrent or the concern that the Chinese government very strategically over the past twenty years built its EV industry.
And when we're talking EV industry, it's not just the EV side of things that the Chinese government has focused on. It's literally the entire supply chain. So they looked at initially, well, let's build some cars as a combustion engine, but then they read the China realized it's actually hard because the US and Europe actually have quite strong industries. And then they looked, well, if it's hard to compete in cars with a combustion engine, why don't we do evs. And
that's exactly what they did. And then they set up a long term strategic industry policy and looked at what they need to accomplish becoming the dominant producer of evs. And one of the things that the Chinese government realized very early on is if you have a strong demand growth for evs, you also need the roma tiers and particularly the battery romatires. Without batteries, TVs don't go very fond. So the Chinese government looked at where some of those
battery romatials are. They did it in lithium, another battery romat heal, they lived in cobalt, and they did also in nickel, and in twenty thirteen, the two presidents of China and Indonesia effectively set together and the discussion pretty much went like that. The Chinese said, look, we need the nickel. The Innetian said, well, we have the nickel. The Chinese said, well, can be invested, and then he said, yeah,
do Let's develop that industry together. And so the Indonesian government then, together with the Chinese, set up industrial parks, and through that industrial park, supported by Chinese money, the nickel industry and then developed very very quickly. It's remarkable at the pace with which Indonesia and China in conjunction have been building that industry.
Let's talk a little bit about how fast that happened. So I think Tracy, did you say it was like twenty nineteen. Even it was the Indonesia wasn't that big of a player.
I'm citing Michael here, but in twenty nineteen it became the biggest producer of nicolas.
And now it's overwhelmingly Yeah, what were the nature of those early relationships, What did China get, what did they have to offer from a technological transfer? And then what is Indonesia ge I guess in terms of royalties and jobs, like how what was the economics of those So but.
In Dntia realized Nidia always was an exporter of nickel wars, which is unprocessed stuff. You basically put it on the ship, send it off the Chinese to China. The Chinese then processed it. And then the Indonesian government realized at some stage that it's actually another a lot of value added in that. And they also saw that demand potentially increases very strongly, and so they wanted to build more of
a value added downstream industry. Indonesia wanted to build a downstream processing industry invited and then was looking at how to actually accomplish that. So in the first instance, what they did is they stopped the exports of unprocessed nickel oars. So in twenty fourteen you could no longer ship unprocessed was In that year, Indonesia had a global nickel market share of less than ten percent, like five or six percent,
very low. And then I think various countries and operators were looking at the Indonesians or and Indonesian was and I set before the Indonesian oars are weathered, was oxidized, was very difficult to process and the Chinese then went
into Indonesia. It's one comedy in particular who then looked at innovative productive production technologies and started experimenting with different methods of extracting the nickel from the nickel oars and were actually quite successful and once they had distemplate in place, the nickel industry then expanded quite quickly.
Has anyone else been able to replicate what that Chinese processing technology that you just mentioned, Like, is this something that other people are doing that has also increased supply elsewhere in the world aside from Indonesia or is it sort of a China Indonesia exclusive thing.
So there's two two technologies. One called pressure as a leading that has been tried before, but literally when you're looking at all the projects that have been brought online in Australia over the lifetime of those projects, those projects feel not pay for the initial investment because it's just a very difficult technology. The Chinese have been very good
in bringing that online. The other technology, which is more paramatology, which is fire smelting and refining, that is also a dominated by the Chinese, so they already had a very strong wall.
It used to be clear Australia has basically tried to do the exact thing thing and internally have not been able to do it economically.
Yeah, So there was a discussion it was about ten fifteen years ago on the type of ores that are available in Indonesia, and I think the undertone always was, look, the oars are there, but they're just very difficult to process, and therefore it's going to it might be hard to see a very big production increases coming through. And that was through up to the point where the Chinese actually then went into Indonesia and started developing those assets.
So talk to us more about the sort of virtuous cycle of the supply chain that this is creating. So China now has access to this cheap and abundant nickel that feeds into their ev industry. How crucial has that nickel been in sort of building out the electric car business in China.
I think nickel on its own probably wouldn't have made much of a difference, but I think where China was very strategic in making sure that all of the raw materiers that I needed it are available. So it's not just the nicer side, it is the lithium side as well. It is the cobal side as well. That's everything that goes into the cassos. And when you look at the unknote the graphite side of things, again China is dominating. So when you're looking at all of those critical raw materials,
a lot of that is being dominated by China. And look, you can take a slightly different view on that. Take the last twenty years during the period of globalization. I bet around twenty ten twenty eleven, the guests that you would have heard that would have had here, there was a lot of talk about I don't know, Netflix, the services industry and the cool stuff basically now, but no one realized that actually, you can't run an economy without
having the basic the basic Roman here. So the vest effectively created a vacuum in those supply chains that China effectively filled. And that's the issue that that governments now have to grapple with.
How much of the Chinese edge when it comes to refining or processing or I guess even acquire raw commodities. How much of the edge is just a sheer scale question. There is a gigantic market in China period. There are a lot of workers in China period, and so setting even setting aside whether different groups of engineers and scientists could replicate these processes on paper. How much is the just the pure scale edge part of the story here.
I mean, having a big domestic market certainly helps, but again what also helps is having a strategic industrial policy to actually being able to capitalize on that on that domestic market. And it's I think the conjunction of those two that wrote about that dominance in the supply to a Now the problem that we're having increasingly is and this always happens in China. We had it in steel, and we had it in aluminimum. When the Chinese government starts
developing industries. There's actually inherently a lot of competition also within China, but you always get over investment, you have got overcome. So take the last study from the European Union, firms and the European Union estimates that last year the Chinese could have produced twice as many cars than they
did through the over capacities that they've had. And so what you're seeing now is that some of those over capacities is or there's a threat that some of that overcapacity is actually now being exploded to the Western markets. And again that takes us back to the whole discussion about terrorists and trade protectionism, But it is that entire approach I think that we've seen the last twenty fifty years that that brought kind of those supply chains together.
Okay, speaking of over capacity, I mentioned in the intro that there have been these accusations of Indonesia essentially flooding the market with low grade and low price nickel. What impact has the dominance of Indonesia on the nickel market actually had on other businesses?
So, if I put it very simply, I think for China it's almost always about quantity, not about value, about volume, but not about value. And so coming back to preventing bottlenecks through the supply chain, when you're looking at the industrial policy, I think what China wants to prevent is constraints and bottlenecks and therefore higher prices that would effectively make it difficult for the strategic industry likely V manufacturers
to produce those evs. And so what we see in Indonesia at the moment is a lot of discussions about where the production costs are Indonesia, what is a marginal cost? Because ultimately, if you're prioritizing value volume over value, then
you're producing at costs. Now, the problem for the producers outside China is if that is the name of the game, there is not a lot of fat in producing nickel, and that's why we've seen the Western producers like BHP and Anglo actually taking a relatively bare review on their nickel assets. PHP actually is probably the one data what you mentioned Ungler before, but BHP is the one that would highlight potentially even more so. They have one operation
in Australia called Nickel West. It's a really significant side big side actually, and a few years back we thought that that could actually be the supplier of choice to the Western or to the ev industry. But that's actually one of the one of the assets that BHP doesn't assign a lot of value to anymore these things.
So prices have just come down so much that this big project in Australia just can't make much more.
Yeah, it's effective that.
I want to go back to something you said in the beginning about the two different types of chemistries. So on some basic level, the nickel based batteries are not as efficient as the sort of the chemistry that's in the West, but the Chinese battery are like the best in the world.
Right. Yeah, So again this is when you would have to go back, because it's the second base evolving is evolving a lot at the moment. So initially, I think when we started talking about the ev industry, the idea was, and that's seven eight years ago, that nickel based batteries are the battery of choice in China and potentially outside China.
The Chinese always had that lithium iron phosphate battery which doesn't contain any nickel, but initially because it's a much lower energy density, was never thought to be kind of the lap choice. But there was a lot of again innovation in that space, and those batteries have become much much better. They are folded differently, they are put together differently,
so the energy density has actually increased as well. And so now you almost have this second lissim and phosphate market that is becoming another mainstay of the industry.
So it is it just to understand this better in theory or the you know, in the sort of the chemistry lab so to speak. The nickel based bader batteries due to the lower energy density.
Higher energy, higher and higher energy density.
The nickel base batteries of higher and higher enginety.
They're the better, but they're normally the better. But the least on phosphate batteries that the Chinese produced historically had the lower energy density. And that's fight. Oh, confused by the idea always was value. You need to have those nickel based batteries if you wanted to have a thousand kilometera driving range in the in the EV side of things.
And so in the US we have nickel based batteries in the Yeah, okay, sorry, thank you for clarifying.
Well, okay, on this note, I think the US and Europe would agree that evs are a strategically important thing that we want to have more of if we're serious about the clean energy transition. And yet there seems to be this tension where mining a component or a material that is actually quite important for these things, viz. The batteries is just not that profitable in the current situation. So what do they do about it? How do we resolve that attention.
That's the focus at the moment, Yes, how do you resolve that? I think tariffs forez better words, I think that's one thing that is clearly being discussed at the moment. So if you don't allow any Chinese evs onto the US market, which is seemingly the direction we want to take, then by definition you're giving your domestic car manufacturers a
bit of breathing space to develop your own industry. The DOE is also looking at different ways to boost nith nickel supply, so there's a lot of focus, for instance, on the recycling side of things. There's also a lot of focus now on assets outside the Chinese supply chain.
I think there were envoys from the US government in Indonesia to discuss a limited free trade agreement with Indonesia too, So there's a lot of movement, but it's not impossible, and I think there will be solutions to the shortfall of critical materials that we do face to some extent on the way to a net zero But both Yes and Europe do have a fair bit of catching up to do in the coming years.
Right now, so obviously with the Inflation Reduction Act, but also the rise of Tesla and others. You know, there's more of a domestic battery industry. In fact, I think we talked to the CEO of one of the companies several months no VANX. We're US based battery companies, startups or various stages in development. Where are we right now sourcing most of our sort of critical components for them, or critical minerals or critical elements for batteries.
Look, there is an existing NICO market. Actually, yeah, there's an existing NICO market.
Actually, but where do we get where do we import it from? What are the big export or exporters to the US.
So when you're looking at the key NICA producing countries outside Indonesia and China, Brazil, that's Canada, Australia as well, the letter two actually have got a green and with US in place, I think it's the question really comes more pressing when you're looking five, six, seven, eight years out. The less cars of the combustion engine you're putting on the road, the more pressing it then becomes to actually make sure that you have got the raw materials available.
And again taking a step back, what we're seeing actually at the moment is in the Western world that the evs, the pure battery electric vehicles are actually downgraded a little bit, so we actually have to take down our penetration rates.
What we're seeing more is kind of that intermediate solution where you're putting hybrid or plug in hybrid electric vehicles onto the road, and for those, for instance, you do need less of the critical raw materials, so that buys you effectively time potentially to build up more of a supply chain. That building up a supply chain, I think is right now the key focus that we have in both US and in Europe.
So just broadening out the metals discussion. You are, of course the head of metals research for BOAS, so we should ask you about some other things going on as well. But it seems to me like one of the major stories in this market has to be volatility recently, and perhaps copper is the best example of that. So we had Jeff Curry on a few weeks ago talking about how long copper was the trade of a lifetime, and since then I think it's down what like ten percent.
Something like that.
I would say like a few weeks is probably not the timescale he was thinking of in terms of trade of a lifetime. But there's definitely been a lot of volatility, and it feels like there's a weird dynamic going on where like part of the thing causing volatility is the restriction in is the type physical market basically, so we're seeing these big swings up and down, partly because we need more of this stuff. What's going on there.
So Coppa is really really different to Nika. On Nica, we had the reserves and the resources, the deposits in Indonesia. On copper, you don't. It's a very mature market. Some of the best assets or mines that we actually have in the world have been running for decades and it's
very hard to find really good new assets. In fact, when you're looking at some of the projects that are currently in the pipeline, just to highlight the difficulty and bring those on lines, some of those weird discovered almost thirty years ago, so it took you almost two generations to bring them to the market, and so we now facing an almost empty project pipeline. But doesn't help either on the copper side, is that during the past ten years,
in the past decade, we had a bear market. Effectively, I bet you in twenty fifteen I would not have been sitting here. It was because there was not a lot of interest in the metals in the metal site. And so think about it, shortly after that or doing that. During this ten years, Glenco almost went bankrupt. How did the miners react to that cut? Kapex and their equation
there is very simple. You don't spend, you don't produce further down the line, and that's not even something that the Chinese government through a strategy industrial policy can resolve. If you don't have the assets, you just cannot produce. And so you're now effectively in a situation their copper supply growth is really tailing off. It's coming down, but
structurally you have got much higher copper de mincros. Over the last two decades, potential copper demandross was maybe two percent out until twenty fifty, we can justify annual copper demand rows of four percent, So twice twice is high, and you don't have the supply grows, and that's I think where then the volatility then effectively comes in because if you don't have the safety buffer, so the inventories that can help even out shortfalls here and there, that's
what ultimately creates grades at volatility. The one point I would make about some of the calls that we've seen in the copper market, like I've seen fifteen thousand I've seen forty thousand dollars. That's all fine, I think if it's a long term you, but it also is a
little bit of a disservice to the industry. To your point, sim I'll give you a very simple if it's a very simple example of say over the last two to three weeks, for instance, so we've had it's more on the option space, but we've had an explosion in interest on the call side, or calls got really really expensive. But then we also saw how the buying started to subside a little bit. And so what has been a very popular position recently in the last few days is
actually selling copper upside through those calls. Now, if you believe in copper hitting forty thousand dollars per ton, immanutely you're not taking that position. So I think with all of those bullish calls, it is important that we write size them and that we cavey at them, because if you're just saying, oh, we're bullish copper and it's going to the moon, you're missing an awful lot of profit along the way. And the point that you just make, yes, it looks good copper for a while, but right now
we're digesting that gains. It's those periods I think where you see this location to the market that you actually want to trade. So I think we need to take a little bit of a more nuanced view on the market then just saying oh, look, coppa is going through the moment.
I think the tricky thing with trying to understand where copper is going is just the sort of sheer physical reality of there's a lot of demand. As you said, the demand growth is going to basically effectively double, and there's this sort of empty project pipeline, and so you're like, well, yeah, of course copper has got to go to the moon.
How does that get resolved? Is there a price which new projects start to like, all right, we got to start putting shovels on the ground, or to your point, is it a matter of we just need less price volatility rather than a specific price signal itself, and then we can start to figure out So it sounds like something has to resolve.
That it would be good if you had both, But the problem is I think more than rather than having less price volatilely we're going to get more price volatility going forward. The price I think that that we're hearing a lot from the miners that we need to justify investment in new minds is minimum twelve thousand dollars per ton, but then Glencore is talking more towards like thirteen fourteen
thousand dollars per ton. Then just to put a reference to that, right now, we're trading at ten thousand dollars per ton, and then the whole problem becomes, well, if the miners really eight for prices, hit twelve or thirteen or fourteen dollars fourteen thousand dollars per ton and then start investing, you have a lead time, so you're not going to resolve those shortfalls imminently. And so did The question on what resolves the potential shortfalls on the copper
market is a very tricky one. We've seen during the doing the energy crisis around the Ukraine War. What happened, so we had in the run up to the Ukraine War, we had a very strong copper price rally and that made many renewable projects loss making basically, so we've actually seen how the deployment of green energy slowed down meaningfully, and that's what I would call demand destruction ultimately, So and we said we've been saying that for a while.
With the current technology that we have, with the current investment that we see in the Mind Project pipeline, it's very very hard. It's almost impossible to get to net zero by twenty by twenty fifty. So something has to give, I think ultimately, and you see that in the New Slow almost daily now. As I think when we put the initial estimates out, we basically said that it was a few years back that limiting global warming to one point five degrees celsius is going to be very hard.
The best you can do is potentially one point eight one point nine degrees, and look like it very much.
Lead point three is a big and that copper is a big part of that story.
Copper.
You need copper in virtually every technology when you're looking at a kind of what the energy transition means. So the decarbonization story, we're effectively talking about electrifying the global economy. So we need power generation, transmission, distribution, and then all consumption. All of that is in the elect in the form of electricity, and you can't do those technologies without copper. Copper is effectively ground zero of the energy transition.
Yes, so I mentioned in the intro that the Indonesian nickel story is something that kind of flew under the radar for me. Copper, not so much. We've done a few episodes. You see the headlines every day now, as you mentioned, But what other things should we be aware of in the metals market right now? Like what could we possibly be missing or what do you get the sense that other people are missing?
You better give us a good answer, especially after having especially after having shamed us for not talking about So okay, we better, you better give us something.
An you're in good company. Then let me let me tell you that I think that was that that was a global theme. But I think what what really needs to happen. I think we can go into the policice policy sphere, but we can also go into the end of the commodity fundamental sphere of fences. When you're looking at E S T for instance, E s T is very important, clearly, I think the energy transition is e actively all about EESG. But there is a little bit of a market failure there as well at the moment,
because we just discuss it. You can't have the energy transition without actually taking the metals out of the ground. But from an ESG perspective, it is still hard for a lot of investors to actually invest in mining assets. So you want to have the energy transition, but you don't want to have the mining. Well, something has to give give here, So that's that discussion is actually evolving.
I think the UPO, the US in the U actually putting more effort into developing mining assets is certainly helping helping that discussion. That's one thing. The other thing that I would say is the energy transition clearly is a game change for the metals. In my view. There are some metters we talked about them at the outset, like the battery romantials, so lithium, cobalt, innicate that look a little bit better supplied that might not really quite as much.
But then there are others like copper and aluminum for instance, that really look much that really look much stronger one a fundamental perspective, so you do get actually relative value there as well. And I think the third point that I would make is innovation. I think we need to see or evolution. We need to see different approaches to making sure that we mitigate the shortfall in those commodities
that are actually under supplied. Recycling scrap that is fin into something that is becoming likely much more important going forward as well, and is one of the least transparent segments of sectors of the metals industry at the moment.
Yeah, isn't it one of those industries where people still like have to call up the junk yards and ask for the latest pricing.
Yeah, I can, I can. I should tell you a funny story about a funny story about there was a few years back we went to visit a scrap yard and there was a whole pile of metal lying somewhere in the corner, and so we asked the master guy in the scraplut what that is, and he said, well, it's a dowry for my daughter. I'm saving that for my daughter. So it is a very arcane industry to some extent, still a lot of smaller and mid sized companies operating in there, and certainly scope to evoive the
way the industry the industry works. I think the other thing I think that that would certainly help there beyond just that is and be seeing that increasingly as well, is that governments focus really on recycling rates. How do you make sure that you're actually getting recycling rates up. Do you have designed products differently to make it easier to recycle them. Do you have to compel manufacturers to
actually take spend products back and recycle them. So there's a whole lot of development on that front as well. I think that would certainly have the recycling space too.
I just have one more question, and you mentioned the sort of I don't know, market failure, maybe market harmonization problem, in which in order to have the energy transition you actually have to invest in a lot of dirty businesses. And we've done some episodes in the past, or at least one that I recall about the amount of water consumption of copper minds in Chile and some of the
backlash there is there a growing issue. And I'm curious also in Indonesia and the local environmental impacts of all this nickel production. Is there any sort of backlash happening there in the vicinity of these and like what sort of the general state of play on that stuff.
Yeah, I think that's certainly when when I said before that from an easy standpoint, it's still hard to understand investing in mining assets. I think mining historically has not been the cleanest of our industries. But I think the miners are trying are trying very hard to mitigate that.
So when you're looking at water being used in the mines, I think there's an effort, for instance, to actually have more of a run around system, so the water that is once in the mind to produce a copper, you're effectively cleaning up and then and then putting back into
the industry. Some operators that are better than others. What we're seeing increasingly is that the better the operators are, the better the better the miners are in engaging this local communities, on the environment, on social on the social compound, the more likely it is to get an interrupted supply. So I think the industry over the last ten to fifteen years has certainly gone a little bit through a learning curve and has been trying to become a better corporate citizen.
All Right, Michael Vidmer, thank you so much for coming on odd lots and making sense of what's been going on in the nickel market. Five cents exactly. No, thank you so much. That was so much fun.
Thank you very much, Joe.
I've really enjoyed that conversation. That was such anclear explanation of what's been going on.
It was so fun. I love Michael.
We have to have a Yeah.
I could have talked to him for like four hours.
Yeah.
I thought his point about the market failure of ESG was a good one and probably one that is becoming more common now than it was a few years ago. But I think one of the problems with ESG in its early the conceptualization is that no one ever really figured out like do you want to engage with the dirty industries and make them better or do you want to stay away from them completely and thereby cut off their access to financing and make them go away in
their totality. And I think, you know, a few years on from all of this, we're kind of seeing the result and the idea that you can get this tension where you need to actually engage in a dirty industry in order to promote the clean energy transition, and so stranding that particular asset is problematic in some ways, let's put it that way.
Yeah, I mean it's always seemed to me like this term ESG means different things to different people. Some people just don't want to invest in energy in industries that they perceive as problematic. In some point. Others from a more policy oriented standpoint, have these set of goals. Sometimes those goals and the interests of investors are aligned, well,
sometimes not so much. I'm just astounded how fast I guess I, like I said in the beginning, one of the few things I knew about the nickel market.
I love that you have three factoids about the nickel market. And one of them is actually a very sophisticated point about the episode that we just had.
Well, I remember like twenty twenty one, twenty twenty two, you know, like there was all those like polychrisis stuff and like Adam Two's and all those guys, and like one of them at some I probably clicked on an article about like Indonesia aiming to capture more downstream value, and I like, choke, you know, stroke my chin as. That's very smart. Just really capture more of the value coming out of the ground.
And so like just one of those things that were at my next cocktail party, all talking about Indonesia's attempts to capture the downsta.
Indonesian nickel markets at are real crossroads, and now they're trying to capture more of the value add rather than just below margin export But then the other thing is I just did not realize how recent Indonesia's rise was at all. If I would have guessed so Indonesia's always made the big nickel exporter and now they're shifting, I did not realize that this is basically a story of the last decade.
It is phenomenal. The other thing that sort of hit home in that discussion with Michael just then was the technology aspect of it, by which I don't mean EVS, but I mean like the actual processing technology of nickel and the fact that that's been driving a lot of the increase in production that China like kind of cracked this new model for doing it and then just invested a ton in it.
Well, you know, one of the conversations we did a couple months ago or I guess a month and a half ago or whatever, we did that trip to North Carolina and one of the companies that we talked to is part of our trip with Tom Bark and that company, Unify, And like one point that has been very lodged in my brain was just the CEO of Unified talking about the huge edge that accrues to Chinese producers of things like advanced textiles due to the sheer scale of the
domestic petrochemical industry that exists in China. And I realize that's not that's petrochemicals, not metals, but it does feel like the sheer scale of refining capacity for petrochemicals, for critical minerals, et cetera in China is just a huge part of the story here. And whoever is access to that cheaper supply is obviously in a good position.
Well, it certainly seems to be a big advantage in something like ev manufacturing, that's for sure. All right, shall we leave it there.
Let's leave it there.
This has been another episode of the Odlots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
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