15/03/2021

Helping drive Europe’s green future

The commissioning of Terrafame’s new battery chemicals plant is timed right for the market, writes Amin Zahir of Trafigura.

Amin Zahir
Head of Metals and Minerals for Trafigura

In late spring 2021 there will be a red-letter day for Terrafame, its shareholders and investors, including Finnish Minerals Group (FMG), Galena Asset Management and its parent company Trafigura, for Finland and for Europe. For on that day a new battery chemicals processing plant will be commissioned at the site of Terrafame’s Sotkamo mine that will fill a major gap in the European supply chain for electric vehicles – a fast-growing industry that is crucial to Europe’s green future.

The new plant will process nickel-cobalt from the existing Sotkamo mining operation. This will transform Terrafame into the largest integrated nickel sulphate producer in the world with a capacity of 170,000 tonnes, over ten percent of the global primary supply of the battery-grade material. The plant will directly employ about 170 people, in addition to the 1,400 directly employed workforce at the mine and metal processing facility, and will raise Terrafame’s contribution to the GDP of the Kainuu region to nearly 20 percent, with significant multiplier effects across Finland.

The completion of this investment project, at a cost of approximately €240 million, testifies to the successful collaboration between Finnish Minerals Group and the Trafigura Group in turning round Terrafame over the past four years. Trafigura’s experience and insights into future demand led to the new direction for the mine, which was supported by Galena Asset Management investing €460 million in Terrafame.

Increasing nickel content within the cathode

The interesting story, though, is what happens next, as Terrafame takes its place at the centre of one of the world’s most important new industries, the manufacture of batteries for electric vehicles (EVs), which rely heavily on nickel and other metals as key components. It was this potential which drew Trafigura, one of the world’s leading metals traders, to the opportunity to invest in Finland in the first place.

By common consent, the outlook for EV sales is extremely positive as a result of an accelerating shift away from cars powered by old-style petrol and diesel engines. All the major automotive manufacturers are now committed to rolling out EV models. Volkswagen alone has plans to transition to battery EVs, with all 300 models across 12 brands having an electric version by 2030. One mainstream estimate suggests sales could exceed 11 million units by 2025 and 18 million by 2030 - respectively a 12 and 18 percent share of all passenger car sales.

However, we believe that falling battery costs (to one eighth of their 2015 level) and government measures around the world to promote EV use could result in even faster growth.

All this already translates into a surge in demand for nickel in batteries. Cathodes based on nickel take up nearly 80 percent of the battery market, thanks to the metal’s high energy density that enables batteries to support a longer driving range. Current plans of major cell makers revolve around increasing nickel content within the cathode, some to more than 90 percent nickel.

As a result, we expect demand for nickel in batteries to rise from around 200,000 tonnes last year to 600,000 tonnes in 2025 and more than 1 million tonnes in 2030. That compares with a total global market today for all uses of nickel of just 2.5 million tonnes.

Batteries need to be made close to where EVs are assembled

The supply chain for EV batteries is long and complex, and to date it’s Asian producers that have made most of the running - particularly South Korean and Chinese companies. As a result, the initial output from Terrafame’s battery chemical plant will find its way to Asia.

But ultimately batteries need to be made close to where EVs are assembled as their weight means it’s uneconomic to ship them round the world. As EV production takes off in Europe as well, the home continent will need its own battery supply chain, and companies are already investing to create one. For example, Germany’s chemicals giant BASF is building a significant battery materials plant at Harjavalta, Finland. Brussels-based Umicore is building a large cathode materials plant in Poland, and LG and Samsung are among several cell manufacturers investing in Poland and Hungary.

All of these operations will need to be fed with high-quality nickel sulphate, and Terrafame will be ideally placed to give them what they need — not least because the production methods in operation at the Finnish mine site have a much lower environmental footprint than those of global competitors. According to a lifecycle analysis completed last autumn, the carbon footprint of the nickel sulphate produced by Terrafame is over 60 percent smaller than the industry average, placing Terrafame in pole position to support the EV battery supply chain that is helping to drive the green energy transition.

So the commissioning of the new battery chemicals plant at the Sotkamo site truly marks the beginning of a new era, and the creation of an all-European approach to this vital industry of the future: reason for celebration above all in Finland itself.

Amin Zahir

Amin Zahir

Head of Metals and Minerals for Trafigura