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We are running out of stuff

4 May 2022

It seems that key natural resources are running short.

As technology advances, it places huge demands on supplies of key raw materials and it's starting to look as if production of these materials is hurting our progress in some sectors.

Perhaps one of the most well-publicised shortages is that of cobalt.

This element has been used heavily in the production of lithium-ion batteries and is only commercially mined in a few locations on the planet. The working conditions associated with these mines has further cast doubts on the sustainability of its extraction as the demand increases.

Neodymium is another element with increasing uses in modern tech and its ore remains a highly sought-after mineral.

However, there is another shortage that has become far more of an issue and this time it's not an exotic element but something your home or office already contains quite a bit of.

I'm talking about nickel.

The chemical, electrical and physical properties of nickel have made it a key part of many modern hi-tech systems.

It has good conductivity, is relatively ductile, resists corrosion and is a key ingredient of many battery technologies.

For a long time, the main use of nickel was simply as an alloying component of stainless steel and thus although the demand was relatively high, it was well within the ability of mining operations to meet that need.

Today however, especially with the growth in production of lithium-ion batteries for consumer electronics, EVs, etc, the demand for nickel is beginning to outpace supply and that's pushing prices through the roof.

As if chip-shortages and other component-level supply-chain issues weren't enough to throw a spanner in the works of EV production, the shortages and high price for nickel could compound the problem significantly.

The spin-off from this is that everything containing nickel, including your lovely shiny plumbing fittings and work surfaces, will become significantly more expensive.

If things continue to head in the direction they're taking, we can expect to see stainless steel become as lucrative as copper for those thieves who strip building sites and sell their plunder as scrap to unsuspecting merchants.

It may also see a shift away from the use of stainles steel for many applications where other non-nickel-based alloys or even plastics may perform almost as well. This would free up the nickel for more prudent use.

As someone who has regularly bought stainless steel (for making jet engines) over the years I can't recall a time when the wholesaler has said "it's cheaper today, the price of nickel is falling". In fact, I'm always told "price has gone up, nickel prices are to blame". This means it should be no surprise that prices continue to rise for this commodity.

However, looking at the historical data, it seems that there was a massive surge in prices back in 2007 when it briefly spiked to US$50K per tonne before dropping back to less than $10K per tonne a couple of years later. Since the beginning of 2020 the price has been trending strongly upwards again, going from $11K per tonne to $32K per tonne just a few weeks ago.

So would it be worth investing in nickel futures perhaps?

I think any prudent investor would probably throw a few dollars that way. There are likely to be good short and long-term gains to be made give the growing demand and limited ability to fill that demand.

As for the future... well odds are that lithium-ion batteries will be replaced with better technologies over time and it is possible (but not guaranteed) that these new technologies will be less reliant on nickel but for the time being it seems that we're stuck with this dependency.

As a footnote I see that Tesla has started using LiFePO4 (lithium iron phosphate) batteries in some of its cars now. These require less nickel in their manufacture but do not offer the same energy density as conventional lithium-ion batteries.

Hmmm... might be time to round up all my off-cuts of stainless steel and head to the scrapyard while prices are high -- or should I hang onto them as my retirement nest-egg perhaps?

The real question for today is: how long will it be before we reach the point where there are no more economically viable amounts of raw materials available to meet our needs and when we get to that point, what will we do?

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