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Fear & Greed, Fear and Greed

Andrew Forrest’s company Wyloo has become the latest to shut down Australian nickel mines, as the price of the battery mineral slides. 

Vivek Dhar, Director of Mining and Energy Commodities Research at Commonwealth Bank, talks to Sean Aylmer, about the market for nickel, and why Andrew Forrest is calling for a shake-up of the London Metals Exchange.

Find out more: https://fearandgreed.com.au

See omnystudio.com/listener for privacy information.

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Sean Aylmer: Welcome to the Fear and Greed Business Interview. I’m Sean

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Sean Aylmer: Aylmer. Mines are shutting down. Workers are losing jobs as

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Sean Aylmer: the price of nickel continues to slide. This week, Andrew

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Sean Aylmer: Forrest’s private company, Wyloo, became the latest to shut down

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Sean Aylmer: operations at nickel mines in Western Australia amid a global

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Sean Aylmer: supply glut. Dr. Forrest has criticized the London Metals Exchange

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Sean Aylmer: saying it’s awash with dirty nickel mined from Indonesia and

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Sean Aylmer: not distinguishing it from nickel mined under high ESG standards

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Sean Aylmer: in Australia. It’s a major development considering nickel is a

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Sean Aylmer: viable component of batteries, of course. It’s also needed for things like

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Sean Aylmer: stainless steel production and coins, I think. Vivek Dhar is the

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Sean Aylmer: Director of Mining and Energy Commodities Research at Commonwealth Bank.

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Sean Aylmer: Vivek, welcome back to Fear and Greed.

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Vivek Dhar: Thank you.

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Sean Aylmer: Just what’s happened to the nickel market? Why have prices

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Sean Aylmer: or how much have they fallen and why have they

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Sean Aylmer: fallen that much?

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Vivek Dhar: Sure. So look, if we look at what nickel prices have

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Vivek Dhar: actually done since the beginning of 2023, we’re talking about

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Vivek Dhar: a 45 to 50% fall in LME nickel futures. So it

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Vivek Dhar: is a sizable decline that we’ve seen in pricing. Now,

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Vivek Dhar: a big part of that fall has to do more

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Vivek Dhar: with what’s happening on the supply side for nickel, and

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Vivek Dhar: it’s in fact Indonesian supply that has absolutely surged. And

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Vivek Dhar: the surplus in terms of the forecast that is expected

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Vivek Dhar: in 2023 and what is expected in 2024, that should

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Vivek Dhar: give an idea of just how much of a surplus we’re

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Vivek Dhar: talking about. The International Nickel Supply Group in late October

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Vivek Dhar: 2023, they came out with their forecast and we’re talking

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Vivek Dhar: 7% of nickel supply is the size of the surplus

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Vivek Dhar: in 2023 and also in 2024.

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Sean Aylmer: Wow.

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Vivek Dhar: So this is what’s driving this massive fall in pricing

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Vivek Dhar: so far.

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Sean Aylmer: Okay. So it’s sort of supply driven. On the demand

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Sean Aylmer: side, what about the plateauing of EV sales, that type

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Sean Aylmer: of thing? Is that playing much of a role?

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Vivek Dhar: Look, it certainly is, but I would say it’s a

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Vivek Dhar: secondary factor for now in terms of what’s a driven

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Vivek Dhar: price action, but it certainly is the case. But if

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Vivek Dhar: you look at what nickel has to do, so when

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Vivek Dhar: we look at electric vehicles, the need for nickel is

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Vivek Dhar: clearly there. Now, your nickel demand forecast is very much

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Vivek Dhar: going to be dependent on how much you think this

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Vivek Dhar: decarbonization story has to go. If you believe in, for

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Vivek Dhar: instance, the status quo of policies, we’re talking something over

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Vivek Dhar: two degrees increasing global temperatures, we need something like nickel

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Vivek Dhar: demand lifting about 1. 3 times from 2022 to 2030. But if

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Vivek Dhar: your ambitions match the Paris Agreement, which is a sub two

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Vivek Dhar: degree world in terms of global temperature rising, we’re talking

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Vivek Dhar: a 1. 6 times increase in nickel usage from 2022

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Vivek Dhar: to 2030. So your nickel demand story is very much

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Vivek Dhar: dependent on your ambition on climate change, but it is now

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Vivek Dhar: the story of supply, particularly in the near term, which

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Vivek Dhar: is driving this surplus wedge in the market at the moment.

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Sean Aylmer: Okay. Now, Andrew Forrest spoke about Indonesia. I’m just parking

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Sean Aylmer: how it’s mined for a moment. Indonesia, but also the

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Sean Aylmer: Philippines, China, I think they’re all big suppliers of nickel

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Sean Aylmer: as well, aren’t they? And they’re obviously putting a lot

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Sean Aylmer: onto the market.

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Vivek Dhar: Yeah, look, in terms of what has driven, I guess

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Vivek Dhar: Indonesian supply, it really goes back to when Indonesia actually banned

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Vivek Dhar: nickel or exports, which was, we’re talking almost a decade

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Vivek Dhar: ago now. From that point, we’ve seen investment by China

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Vivek Dhar: into Indonesia lift dramatically, particularly on the nickel side. So

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Vivek Dhar: we have not just mined nickel, which is now converted

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Vivek Dhar: into intermediate products, which are ready for mostly the stainless

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Vivek Dhar: steel sector, but increasingly we even have stainless steel production

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Vivek Dhar: in Indonesia, and we’re seeing more and more conversion into

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Vivek Dhar: the battery sector that China really, really wants. So this

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Vivek Dhar: story, as much as Philippines has added supply and China

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Vivek Dhar: itself has added supply, it is the investment in Indonesia

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Vivek Dhar: that has been the game changer for the nickel market.

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Sean Aylmer: Andrew Forrest talked about the LME, the London Metals Exchange and its

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Sean Aylmer: role in all this. I don’t quite get that. Can

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Sean Aylmer: you explain that to me?

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Vivek Dhar: Sure. Look, the way that nickel is priced is something

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Vivek Dhar: that is increasingly coming under scrutiny. So the way that

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Vivek Dhar: we look at nickel supply and demand is we look

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Vivek Dhar: at all the types of nickel in the world, we

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Vivek Dhar: convert it into a contained nickel kind of market, and

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Vivek Dhar: therefore we create supply and demand. But increasingly the question

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Vivek Dhar: is, is that the right way to price nickel? Because

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Vivek Dhar: when you look at it, the nickel that’s needed for,

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Vivek Dhar: say, the stainless steel sector is actually a lower- quality

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Vivek Dhar: nickel, and that is something that in the market is

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Vivek Dhar: known as Class 2 nickel. And that’s something that you

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Vivek Dhar: can argue should this be priced according to the LME nickel

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Vivek Dhar: price, which refers to the very high grade nickel, right?

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Vivek Dhar: So when it comes to the pricing methodology, it’s like,

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Vivek Dhar: look, should we have a premium for the nickel, which

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Vivek Dhar: is set for I guess the more pure nickel for

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Vivek Dhar: the battery application?
So that’s factor one, right? And that’s

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Vivek Dhar: been a big conversation topic, but I guess some of

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Vivek Dhar: that conversation has been silenced because we’ve seen Indonesia actually

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Vivek Dhar: build supply, which can be converted into that high- grade

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Vivek Dhar: nickel market. So that conversation has almost ebbed and flowed,

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Vivek Dhar: but it’s not really the big talking point that we

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Vivek Dhar: saw in the news flow this week. What has come

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Vivek Dhar: out is, well, why isn’t there a premium for something

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Vivek Dhar: which is done in a low- carbon way? Now that

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Vivek Dhar: is a function of, okay, you have a low- carbon

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Vivek Dhar: nickel product, why doesn’t that attract a premium in the

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Vivek Dhar: market? Now the reason why it’s low carbon has to

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Vivek Dhar: do with the geology. So the nickel that’s produced out

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Vivek Dhar: of Australia predominantly comes from a type of deposit called sulfide

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Vivek Dhar: deposits, which are easier to process in a low- carbon

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Vivek Dhar: way into your battery- grade nickel. So that’s now where

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Vivek Dhar: the argument has centered that, look, let’s put a premium

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Vivek Dhar: for this product. And very much it’s the lifeline that

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Vivek Dhar: Australian nickel producers need in order to stay profitable in

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Vivek Dhar: this market at the moment.

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Sean Aylmer: And how likely is that? I mean, in some other

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Sean Aylmer: commodities, coal is an example where there are sort of

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Sean Aylmer: price differentiation between the types of coal. Is what you’re

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Sean Aylmer: talking about likely in nickel?

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Vivek Dhar: So far no real market has evolved. It is still

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Vivek Dhar: very, very nascent. And to expect for a market to

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Vivek Dhar: get to that stage in a matter of months or

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Vivek Dhar: even six months or even a year, I would say,

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Vivek Dhar: is very ambitious. It will take time. I think there

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Vivek Dhar: will be a point where you are paying for low-

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Vivek Dhar: carbon nickel. I think we will get there, but to

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Vivek Dhar: think that it’s just around the corner, I think, is

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Vivek Dhar: just certainly not been the case historically in terms of

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Vivek Dhar: how markets have developed over time.

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Sean Aylmer: Stay with me, Vivek, we’ll be back in a minute.

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Sean Aylmer: I’m speaking to Vivek Dhar, Director of Mining and Energy

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Sean Aylmer: Commodities Research at Commonwealth Bank. Can we move on to

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Sean Aylmer: lithium? That’s the other one that’s making a lot of

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Sean Aylmer: noise or a lot of news in recent times. The

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Sean Aylmer: price of lithium has certainly tumbled over the past 12

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Sean Aylmer: months or so. Is it the same story? Is it

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Sean Aylmer: a supply- driven issue there?

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Vivek Dhar: Yeah, look, in terms of what’s happened on the lithium

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Vivek Dhar: side, yes, we have seen a supply response and the

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Vivek Dhar: supply response has been meaningful enough that we’ve seen probably

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Vivek Dhar: a surplus expected over the next two years. And the

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Vivek Dhar: problem is that in the background, you have a lot

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Vivek Dhar: of supply that can come on if prices get high enough,

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Vivek Dhar: that even if prices lift, you could potentially see a

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Vivek Dhar: surplus extend maybe for the next four years. So this

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Vivek Dhar: market is certainly one that has seen the supply response

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Vivek Dhar: and you’ve gone through the boom and bust cycle. But

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Vivek Dhar: we are still higher. When we talk about pricing or

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Vivek Dhar: certain products, we’re roughly at the levels of the 2016 to

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Vivek Dhar: 2021 average for lithium. Now, slightly higher for lithium carbonate,

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Vivek Dhar: but we are seeing that pricing return to kind of

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Vivek Dhar: those previous levels.
Now, the question in terms of the

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Vivek Dhar: market is how quickly is demand going to respond because

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Vivek Dhar: we have seen EV or at least battery cell prices

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Vivek Dhar: drop. Is that going to incentivize a new wave of

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Vivek Dhar: demand? Is that going to now drive the cycle to

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Vivek Dhar: recover? And that’s what everyone is looking at, but very

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Vivek Dhar: much towards the backend of this decade. But, yes, it

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Vivek Dhar: is a supply response story, but I would say that

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Vivek Dhar: what’s happening with Indonesia, and nickel has been a very

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Vivek Dhar: different story in terms of just the investment and oversupply

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Vivek Dhar: we’re seeing in that market, but I’d say demand has

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Vivek Dhar: played a bigger role in terms of that EV slowdown

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Vivek Dhar: in terms of its uptake, particularly over the last six

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Vivek Dhar: to 12 months in the lithium market.

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Sean Aylmer: So is this just normal cycles of commodities? I mean,

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Sean Aylmer: in Australia we’re so used to hearing about iron ore

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Sean Aylmer: and coal, and we all see what’s going on in China and

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Sean Aylmer: Japan and things like that to see what’s going happen

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Sean Aylmer: in iron ore and coal. These battery metals, is it

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Sean Aylmer: just a matter of normalizing things, sort of balancing out

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Sean Aylmer: supply and demand and it might take 10, 20 years for

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Sean Aylmer: that to actually happen?

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Vivek Dhar: Yeah, look, with lithium, I’d say the exception is that

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Vivek Dhar: it’s very much a nascent market. It is evolving. It

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Vivek Dhar: started very small and it’s now about 30 billion in

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Vivek Dhar: size and it’s growing. It’s becoming a mature market. So

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Vivek Dhar: I’d say lithium is going through that cycle right now

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Vivek Dhar: of becoming a mature commodity. And in that it is

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Vivek Dhar: being seen with boom and bust cycles, which has really

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Vivek Dhar: defined it over 2022 and 2023. But in terms of the demand

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Vivek Dhar: need for lithium, it is significant. And even though we

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Vivek Dhar: may see oversupply pressures over the next few years, it

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Vivek Dhar: is still going to be a real challenge to get

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Vivek Dhar: enough supply by 2030. So I’d say lithium has a

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Vivek Dhar: big demand driver to it, and I think supply is

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Vivek Dhar: still challenged by the end of this decade to meet

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Vivek Dhar: that obligation.
Nickel, in terms of how it’s working, I’d

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Vivek Dhar: say it’s more structural in terms of how Indonesia is

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Vivek Dhar: pushing in new supply. And increasingly, if you look at

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Vivek Dhar: their cost base, it is coming at very low levels

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Vivek Dhar: compared to what people thought. So I’d say what’s happening

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Vivek Dhar: in nickel, which is already very much a mature market,

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Vivek Dhar: what has driven it is a structural change coming out of

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Vivek Dhar: Indonesia. And as that cost comes down, it’s really going

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Vivek Dhar: to pressure the entire market. So I’d say slightly different

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Vivek Dhar: drivers in terms of what’s happening between lithium and nickel.

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Vivek Dhar: It’s quite nuanced, but what’s happening in nickel right now

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Vivek Dhar: for me is a cause of concern because that structural

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Vivek Dhar: supply change from Indonesia, that low- cost nickel supply can

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Vivek Dhar: be a game changer for long- term pricing.

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Sean Aylmer: I mean, for most of us here who don’t have

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Sean Aylmer: a job like yours, Vivek, how this plays out in

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Sean Aylmer: many ways is Australia is trying to develop those industries.

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Sean Aylmer: But of course, when you’re up against competitors who are

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Sean Aylmer: very price competitive as what’s happened at the Wyloo business, you’re going to

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Sean Aylmer: end up with job losses and those sorts of things.

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Sean Aylmer: But I suppose that is just part of the market, isn’t it?

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Vivek Dhar: That’s right. At least supply is responding that when prices

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Vivek Dhar: are low, you see supply come off. It usually indicates

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Vivek Dhar: that we’re near the bottom. When these decisions are made,

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Vivek Dhar: that’s generally that, okay, we’ve hit this point, supply is

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Vivek Dhar: responding, and then we’re going to see the market enter

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Vivek Dhar: a new period and we’ll see where prices settle. But

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Vivek Dhar: in terms of where the market goes, I think we

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Vivek Dhar: are going to be in for this volatility as we

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Vivek Dhar: get our grips around how much new supply is being

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Vivek Dhar: incentivized because of this green boom and just when we

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Vivek Dhar: need that supply, it’s not so much near dated as

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Vivek Dhar: it is backdated. And that’s going to be the battle

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Vivek Dhar: for these transition metals over the next, I’d say, few years.

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Sean Aylmer: Vivek, thanks for talking to Fear and Greed.

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Vivek Dhar: Thank you.

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Sean Aylmer: That was Vivek Dhar, Director of Mining and Energy Commodities

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Sean Aylmer: Research at Commonwealth Bank. This is the Fear and Greed

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