VANCOUVER, British Columbia -- The world's biggest nickel producers, already benefiting from nickel prices near 16-year highs, are starting to wax lyrical about the demand potential of the hybrid car market.
Vigorous global demand for nickel and tight supply are not stopping Canada's Inco Ltd. and Falconbridge Ltd., respectively the world's No. 2 and 3 producers, from training their sights on the small but fast-growing market for hybrid electric/gasoline vehicles, which use nickel-containing rechargeable batteries.
Hybrid vehicles typically twin an internal combustion engine with an electric motor and battery. Braking captures lost energy to charge the battery, which helps power the vehicle, enabling it to save on fuel and emit less pollution.
Hybrids are still a drop in the ocean of world car sales, but purchases have soared as oil prices stay high and countries try to limit harmful emissions.
"We were glad to see the Honda Accord hybrid voted best in class by Consumer Reports magazine, following numerous awards for Toyota's Prius -- proving that hybrids are no longer a fringe market. This means more demand for specialty nickel," Inco's marketing head, Peter Goudie, told an analysts' conference call late last month.
Two-thirds of nickel output goes into stainless steel. But small amounts in the form of foams and powders are made into nickel metal hydride batteries -- rechargeable cells that can be used in cellphones, electric toothbrushes and now hybrid cars.
"I think it's an interesting market, although it's not huge at the moment," said Bill Kipkie, vice president and general manager of Inco special products.
"What is encouraging for us is that there is potentially quite a bit of foam and powder that can go into these markets. We obviously want to participate in that," he said.
It's hard to pinpoint exactly how much nickel is making its way into hybrids, mostly via Japanese battery makers, but estimates range from 8 kilograms to about 13 kg per battery pack.
A back-of-the-envelope calculation multiplying that by the 500,000 hybrid cars that some researchers say could be sold globally this year, gives an estimate of 6,500 tons of new nickel demand.
In addition, as much as another 6 kg of plated nickel or nickel alloy per hybrid car might be used for supporting cabling, conductors and electronics, said Santo Ranieri, market research head at Toronto-based Falconbridge.
The nickel battery also contains cobalt, and the electric motor extra copper, both metals that nickel producers often mine in tandem with their primary product.
Overall, hybrid nickel demand is still small when compared with world demand of about 1.3 million tons this year, but the exponential growth of the market to date -- albeit from a low base -- offers promise for producers.
From a handful in 1997, global hybrid sales are forecast to reach between 1 million and 3 million cars by 2010, possibly creating new demand for 50,000 tons of nickel a year -- equal to a year's output from Inco's big new Voisey's Bay mine on Canada's Atlantic Coast.
But some analysts remain skeptical. Research firm J.D. Power and Associates argues that the $3,000 to $4,000 mark-up on hybrids will keep the market small, and that it will plateau in the United States by 2010 at just 3 percent of car sales.
There is also the possibility that nickel batteries, as has happened in cellphones, could be replaced by lithium-ion packs, which are more energy-dense and therefore smaller and lighter.
But for now nickel miners, watching waiting lists for hybrids grow and carmakers such as General Motors Audi AG jump on the bandwagon, are encouraged.
"I think there is reason to be optimistic about the trend. A lot of progress has been made," said Falconbridge's Ranieri.
"It's premature to get very excited about it but I think all the signals are there that it is going to be a potentially lucrative market sometime in the not too distant future."