Why do we care about nickel? Do we even? Should we? Why?

Good questions!

We think yes. Both in terms of the market and the signal it is sending about how removing or redirecting Russia's commodity production could lead to years (plural) of disruption.

2021 became famous for supply chain disruptions caused by major shifts in demand during the pandemic. 2022 could see far worse caused by the major re-ordering of global supply chains and the removal of certain key supplies from their historical buyers.

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For now - and we stress that aspect! - the most significant aspect of the nickel meltdown is:

1. It is emblematic of the fact that, in our zeal to punish Russia, we are stress testing a huge number of markets - especially in commodities - in real time and with real world consequences. It is a very dangerous way to find out if anything will break.

2. Russia commodity supply matters! And not *just* in oil and natural gas. Nickel, as well as many other industrials metals, some niche like palladium and others very major, like aluminium, is vital for many industries.

Here is how Russian supply is consumed:

These are important industries. We are once again (!) putting huge amounts of pressure on international supply chains and industries and their capacity to be resilient.

But there is an absolute supply point as well.

Russia may be only 6% of global nickel supply but it produces over 17% of "Class 1" Nickel. And it is this class of nickel that is required to build electric vehicles (EVs) and especially their batteries.

This will therefore severely limit the supply side of the energy transition. So two weeks ago some people were excitedly suggesting that, in the event of war, oil prices would rise and this would encourage people to transition to EVs.

They were not thinking that oil prices would rise AND the price of electric vehicles would also rise as their supply became more constrained. Or that there will simply be far fewer electric vehicles for sale at any price.

This nickel vignette therefore illustrates the difficult situation we are in:

1. Thanks to the sudden onset of war and sanctions, there are suddenly very limited options for new supply for a lot of globally traded commodities and simply pivoting to other supply sources is not possible.

2. Over time these snags will clear but in the meantime costs will be elevated and they will filter through to impact other goods.

3. This will not just boost inflation. It also demonstrates the tightness of supply. Nickel costing more doesn't immediately create more nickel. It creates more people trying to find nickel.

This also doesn't account for the hidden knock on effects of the supply chain that have suddenly been thrown into chaos.

In early autumn 2021 we wrote about how rising natural gas prices prices meant that European ammonia producers shuttered production because they couldn't compete with foreign suppliers.

This was all fine and well except no one realized that one of the side effects of ammonia production is carbon dioxide or CO2. No ammonia meant no CO2. The problem was that many other industries relied on that carbon dioxide. This included slaughter houses, meat packing, brewers, carbonated beverages and, most dangerously, hospital surgeries.

So, what began with falling wind in the North Sea ended with postponed critical surgeries. Now, what began with artillery strikes in Kyiv and Kharkiv and Kherson is ending with fewer electric vehicles for sale and a chunk of the world's nickel supply missing in action. Quite the butterfly effect in action.

What are some of the underappreciated ripples from the war in Ukraine showing up, most critically? Have an idea? Email us.

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