Battery raw materials could face supply crunch by mid-2020s

The electrification of transport is redefining a number of metals markets. As demand for batteries grows at an unprecedented rate, battery metals – cobalt, lithium, and nickel – could face a supply crunch by the mid-2020s, according to Wood Mackenzie.

According to the market analyst, total passenger electric vehicle (EV) car sales, including hybrid electric vehicles (HEV), were up by over 24% last year. Although HEVs had the smallest growth, they made up over 60% of EV sales. The company expects global electric car sales (with a plug) to account for 7% of all passenger car sales by 2025, 14% by 2030 and 38% by 2040.

‘Battery pack sizes continue to trend larger through the medium term, resulting in overall greater battery demand,’ says Gavin Montgomery, Wood Mackenzie Research Director.

‘We have seen the first announcements of the commercialisation of NMC 811 cells in EVs. Unsurprisingly, China was the first mover here, but the likes of SK Innovation (a South Korean company) are intent on the mass production of 811 cells before the end of 2019. While still conservative on mass market uptake for these cells, we are more optimistic in regards to adoption. As such, we expect to see an increased nickel demand at the expense of cobalt, and to a lesser extent, lithium.’

‘It’s true that most automotive manufacturers plan to go completely electric by 2050. However, unless battery technology can be developed, tested, commercialised, manufactured and integrated into EVs and their supply chains faster than ever before, it will be impossible for many EV targets and ICE (internal combustion engine) bans to be achieved – posing issues for current EV adoption rate projections,’ he warns.

Retreat in lithium prices underway
Spot prices for lithium carbonate have fallen by just under $7,000/t since June 2018.

‘We are seeing the same weakness in the realised prices of the majors and their expectations for 2H2019. And this is in an environment where the major brine producers in South America have failed to ramp up capacity. Clearly, the first responders to the lithium boom – Australian hard rock mines – have the capability to quickly deliver the required tonnages. Meanwhile, the bottleneck in Chinese conversion capacity that was supporting prices is giving way as China emerges as a net exporter of lithium chemicals to the region,’ notes Montgomery.

‘It has only taken a few years for the battery sector to become the largest demand driver for lithium. Lithium’s use in every lithium-ion battery type means it will have double-digit annual growth, making up over 80% of total lithium demand by 2030.’

Cobalt prices plummeted 
‘Like lithium, cobalt prices have softened over 1H2019 – though more with a crash than a steady decline. The low prices may defer some mine projects and are likely to see reduced artisanal output from the DRC. However, the industry must still contend with an oversupply of intermediates at least out to 2024. While metal supply continues to contract, the existence of swing supply in China is likely to keep a lid on any major price upside.

Although cobalt continues to look challenging in the long-term, the increased adoption of high-nickel batteries in EVs means the emerging deficits look slightly more achievable than previously expected.

Indonesia key for nickel
‘While high-nickel ternary batteries will mean higher corresponding demand for nickel, like cobalt, our long-term deficits are becoming more feasible. Much of this is due to growing capacity in Indonesia, to serve both the stainless steel sector and emerging battery demand,’ continues Montgomery.

‘Although the battery sector share of nickel demand is much smaller than other metals, getting the quantity of nickel that EVs will need by the mid-2020s will be a challenge. A low nickel price has hindered any project development and with lead times often up to 10 years, investment needs to happen now.’

Business as usual for graphit
For graphite, there is little change in fundamentals. While the scale of demand is huge, Wood Mackenzie does not expect any supply-side challenges in terms of natural graphite flake due to the growing supply out of East Africa.

Synthetic graphite presents more of a challenge, given potential disruption to needle coke feedstock as a result of the new IMO 2020 regulations and growth in China’s steel sector.

Manganese central to NMC batteries
‘The manganese industry is overwhelmingly driven by the steel sector, something unlikely to change no matter how many EVs are on the road. While a steady supply of manganese sulphate will be crucial for NMC battery producers, we do not foresee any supply-side issues in this space,’ concludes Montgomery.