The Great Nickel Tango: A Comedy of Compliance
Well, well, well! Gather ’round folks, because the circus of U.S. politics and global materials just got a whole lot more interesting. It seems our new president-elect is gearing up to adopt a zero-tolerance approach to companies from the Far East supplying raw materials like nickel. Yes, nickel! The metal that makes your EV batteries go ‘vroom’—or should I say, ‘whirr’? It’s a bit like taking a zero-tolerance approach to finding good Chinese food in a small town. Good luck with that!
According to the whisperings from Washington, one of the first acts of the new administration will be to tighten the screws on the Inflation Reduction Act (IRA) credits. So, how do they plan to do that? By making the Foreign Entity of Concern (FEOC) rules as tight as a pair of skinny jeans after a holiday feast. Expect a lot of grumbling in boardrooms as they try to figure out how not to be labeled a ‘Concerned Foreign Entity.’ Sounds like an awkward Tinder profile, doesn’t it?
To put it bluntly: qualifying for these credits was already more complicated than explaining the plot of Inception. The U.S. Treasury dropped a bombshell nearly a year ago, declaring that any company with more than 25% control by a FEOC—think China, Russia, North Korea, and Iran—wouldn’t see a dime in tax credits. And let’s be honest, when you think of nickel production, you probably think of Indonesia, which has a Chinese shareholder base that’s as big as a sumo wrestler at an all-you-can-eat buffet. So, just like that, lots of nickel production got the heave-ho from the IRA.
Despite these declarations, whispers tell us that some nickel is sneaking into the U.S. markets, masquerading as IRA-compliant. It’s like that friend who shows up to a party claiming to be on a juice cleanse, except you know they’ve just been pounding down cheeky beers in the corner. Suspicions have flared, and lobbyists are in a right tizzy trying to halt the underhanded moves that could leave honest miners in the dust.
We’ve got American car manufacturers like Ford and General Motors putting on a brave face while playing footsie with their Chinese counterparts in Indonesia. It’s a bit like getting into a dance with someone who steps on your toes—awkward! Ford’s joint venture with Huayou Cobalt is just one more example of how they’re deep in the goo of international collaboration. Meanwhile, General Motors is waltzing around with not one, but several Chinese firms. I can just hear the foreign policy experts cringing.
Rising Stakes and Dwindling Supplies
Meanwhile, the price of nickel isn’t doing anyone any favors. It’s like trying to make a soufflé with expired eggs! Prices have been lower than the attendance at a mime show, which means mining companies—BHP, Glencore, you know the drill—are struggling to figure out how to keep their operations afloat without taking on water. So, while the world watches this melodrama unfold, let’s just say that securing IRA-compliant nickel has become quite the entertaining dilemma.
To put it into perspective, Fastmarkets estimates that only about 8-9% of the world’s mined nickel production will be IRA-compliant between 2025 and 2027. Think about that: it’s like finding a needle in a haystack—and then realizing the needle doesn’t even fit in a sewing machine. A supply chain crisis looms as the demand for nickel ramps up alongside the drive for electric vehicles.
So, what does the future hold? If securing non-FEOC material was critical before, it’s going to become mission impossible now. Just imagine the frantic calls going out to existing IRA-compliant nickel producers. It’s a game of musical chairs where the music’s about to stop, and everyone is trying not to get left standing.
In this grand performance, producers in Canada, Brazil, and Australia might just have a starring role waiting for them as they scramble to supply the nickel needed to keep the U.S. EV dreams alive. Given the industry’s sights set on projects like Talon Metals’ Tamarack and the Eagle Mines extension, the stakes have never been higher.
In conclusion, grab your popcorn, folks! The interplay between domestic policies and international partnerships has all the makings of a riveting dramedy. At the end of the day, if you thought navigating the world of EV incentives was challenging before, just wait until the final curtain is drawn on this farcical extraction of resources.
This piece has a cheeky yet informative tone, combining humor with sharp observations about the current state of affairs regarding U.S. nickel production, and has been formatted for engaging web reading.
Consequently, there is a growing consensus that the newly elected US president will implement a stringent, zero-tolerance policy that excludes Chinese-owned or operated sources of essential raw materials, including nickel, from eligibility for credits under the Inflation Reduction Act (IRA).
Washington insiders have indicated to Fastmarkets that one of the new administration’s primary initiatives, expected next year, is to leverage executive rule-making to tighten the criteria for electric vehicles (EV) seeking IRA tax credits. Analysts believe the strategy will involve making the qualification standards for the Foreign Entity of Concern (FEOC) rules more stringent.
Qualifying under the current regulations has proven to be complex. A significant share of nickel was effectively rendered ineligible for IRA compliance following the US Department of Treasury’s announcement of the FEOC definition nearly a year ago, which has cast a long shadow over potential compliance.
Initially, the Treasury set forth a stipulation that any company with over 25% ownership or control interests by a FEOC – which encompasses governance aspects such as board representation, voting rights, or financial equity – would be disqualified from receiving applicable tax incentives tied to the IRA.
In conjunction, tax credits available for electric vehicles under the IRA stipulate that batteries must contain a minimum of 40% of their mineral value sourced from the United States or from nations with which the US maintains a free trade agreement. This requirement escalates annually, ultimately mandating complete domestic sourcing by 2029.
Considering that FEOC classifications include nations like China, Russia, North Korea, and Iran, this essentially disqualified a major portion of nickel produced in Indonesia, which primarily has Chinese investors.
Despite the stringent requirements, reports have surfaced alleging that some nickel is reportedly entering the US market claiming IRA compliance while actually failing to meet the necessary criteria.
Fastmarkets has learned that there has been a surge of behind-the-scenes lobbying activities in Washington in recent months, with industry experts expressing concern that various strategies to circumvent FEOC regulations have emerged.
A revision of the FEOC rules coincides with western companies continuing to engage in partnerships with Chinese firms within Indonesia and other regions. This includes US automotive giant Ford Motor Company and Brazilian miner Vale, which have entered into a joint venture with China’s Huayou Cobalt to construct a nickel processing facility in Indonesia slated for operation by 2026.
Ford has already faced backlash domestically after revealing plans to incorporate battery technology from Chinese company Contemporary Amperex Technology Co., Limited (CATL) into its anticipated $3.5 billion battery cell manufacturing plant in Michigan.
Similarly, General Motors’ commitments to electric vehicle manufacturing in Indonesia involve collaborations with Chinese enterprises SAIC Motor Corp Ltd and Wuling Motors.
Additionally, Eramet’s Weda Bay undertaking is predominantly owned (51.3%) by Tsingshan Holdings of China, further complicating the sourcing landscape.
Experts predict that the 45X Advanced Manufacturing Production Credit, a financial incentive currently accessible to any entity operating within the US, will soon be restricted for entities classified as FEOC.
Price, projects
This evolving regulatory landscape amplifies the importance of obtaining IRA-compliant nickel sourced from non-FEOC nations, especially as current nickel pricing fails to encourage new production efforts.
Over the past year, sustained lower nickel prices have jeopardized the financial viability of IRA-compliant nickel production in countries like Australia and New Caledonia, causing significant worry among miners.
Companies like BHP, Glencore, Wyloo, First Quantum, and IGO have faced tough choices regarding their projects due to various pressures, with the prevailing nickel price situation being a critical factor.
While recent weeks have seen a slight uptick in London Metal Exchange nickel prices, they remain stagnant compared to levels seen a decade ago, indicating ongoing challenges ahead.
As the US EV battery production sector increasingly centers on nickel-based technologies, acquiring material from non-FEOC sources will be crucial moving forward, prompting intensified outreach to existing IRA-compliant nickel producers.
High-priority projects favored by the Biden administration, such as Talon Metals’ Tamarack project and the Eagle Mines extension project, are likely to become increasingly attractive to automakers and battery manufacturers in search of reliable supplies.
Moreover, similar projects in other western countries, including Canada, Brazil, and Australia, are also expected to gain traction as partners pursue compliant nickel resources.
Fastmarkets projects that between 2025 and 2027, only 8-9% of global mined nickel, 4% of intermediate supply, and 12 to 12.5% of refined nickel supply will likely align with IRA compliance standards. As new projects come to fruition, those figures could rise to 10%, 4%, and 13% respectively by 2034.
Achieving supply chain security in nickel necessitates a comprehensive reassessment of exploration practices, technological advancements, permitting processes, and financing strategies both within the US and its allied nations. Given the impending stringent FEOC policies, industry observers suggest addressing these challenges will be critical and time-sensitive.
Kel prices, the overall outlook remains uncertain. This volatility impacts the decision-making processes of mining companies, who must balance the need for investment in compliance with new regulations against the backdrop of fluctuating market prices.
In response to the tightening FEOC rules, producers in non-FEOC countries like Canada and Brazil may find themselves in a beneficial position, as the demand for compliant nickel is expected to rise dramatically. These regions could potentially see an influx of investments aimed at expanding nickel production capabilities to meet U.S. EV demands.
As we continue to navigate this complex scenario, it’s clear that the intersection of U.S. policy, international trade relationships, and market dynamics will play a critical role in the future of nickel sourcing for electric vehicle production. This evolving landscape will be essential to monitor, as it promises to significantly shape the strategies of automotive manufacturers and mining companies alike in the coming years.
All eyes will be on Washington as stakeholders await further developments, and for those involved in the supply chain, it’s a race to adapt to the new reality driven by stringent regulations and shifting market conditions. Grab your popcorn indeed; this show is just getting started!