WEBINAR: Six key themes in the battery raw material markets
From future raw material investments to China’s resurgence in lithium-iron-phosphate (LFP) battery chemistries, Fastmarkets analysts and reporters consider six key discussion points dominating the battery and electric vehicle markets.
The below themes were raised from questions during Fastmarkets’ webinar “Covid-19 and the battery raw materials supply chain” on May 19. To listen again to the webinar, click here.
Oil price weakness will not get in the way of the clean-air push
Oil prices have taken a substantial hit amid mounting oversupply, but that does not change the ultimate trajectory of electric vehicle (EV) uptake, with such vehicles having economic benefits over time.
“Over the long-term I think the EV move is gathering momentum and it’s not all about oil prices. EVs are still a premium option and, therefore, if people have tight budgets at the moment and they’re looking for the cheapest option, then the low oil price might sway them, but I think it’s a short-term thing,” Fastmarkets’ head of battery raw material research Will Adams said.
EVs have other practical appeal, for example in most Chinese tier-one cities, it is far easier and quicker to get a licence plate for an EV than for an internal combustion engine (ICE) vehicle.
“It’s not just the fuel input cost, although that is important. People are beginning to look at the cost of ownership, EVs are a lot cheaper to service, recharging them is also cheap and if you look at the costs over the whole duration of the car’s life there are some strong cases [to buy one],” Adams added.
Furthermore, automakers themselves are likely to push for EV adoption. “There has been a call for [the implementation of] strict CO2 emission regulations to be delayed, but a lot of the [original equipment manufacturers] OEMs, having spent a lot of money getting ready for the new regulations, actually want to go ahead with the original timetable,” Adams said.
From this year, automakers face the phased introduction of penalties of €95 ($103) per gram per vehicle, over maximum CO2 emissions of 95g/km.
“The penalties could be significant and I think that will really drive OEMs to push EV sales over the next few years…I don’t think the cheaper oil price is going to get in the way of the EV revolution,” Adams said.
Investment will ensure infrastructure, driving ranges, don’t hamper EV adoption
Covid-19 has meant changes to work and travel habits, and some of those might stick as economies and society move out of the pandemic. Where feasible, individuals may continue to work more flexibly, but they may also prefer car ownership over public transport.
Charging infrastructure is likely to be an obvious area for investment while governments look to both stimulate economic recovery and get people back to work in a Covid-secure way.
In China, the number of charging units in tier-one cities is already quite high, and building up the number of charging locations is one of the seven “new infrastructure” areas that the government is investing in so charging facilities should not be a significant restraint to EV adoption. As of December 2019, there was one charging facility to every 3.4 EVs, according to data from the China Electric Vehicle Charging Infrastructure Promotion Alliance.
In Europe, EV charging infrastructure needs to be more widespread and that will come, but as higher energy density vehicles with larger driving ranges are produced, anxiety over charging will fall. If an EV can drive 350 miles on a charge and most people travel around 1,000 miles a month, then the EV will only need recharging three to four times a month.
In our poll, 80% of respondents said either that Covid-19 would cause a short delay to the pick-up in EV demand, but that adoption would then follow its previously forecast trajectory, or that EV uptake would be slower than previously expected post Covid. If that is true, there is time for the necessary infrastructure investments to be made to make EVs a practical option.
LFP, NCM chemistry not mutually exclusive given scope for EV adoption
Nickel-rich batteries using nickel-cobalt-manganese cathodes have gained market share in the past few years, while that of lithium-iron-phosphate batteries has declined, though the latter has had a resurgence in China more recently
"[NCM batteries] are certainly what [European] OEMs have set their sights on at the moment so the plan for the models to be introduced over the next few years will continue to go down those lines,” Adams said.
The use of LFP batteries need not be limited to China over a longer period, however.
“Initially the resurgence in LFP is going to be a Chinese thing but there’s no reason to think it might not spread further afield. That would have some impact on nickel and cobalt [demand] but there is so much growth ahead so I think there’s room for more than one battery chemistry in circulation,” Adams said.
Whether LFP or NCM, demand for cobalt per vehicle will be reduced, but forecasts for EV sale growth after Covid-19 still point to increasing cobalt demand overall. It is worth noting that at this stage, the largest cobalt consumer in batteries is the consumer electronics sector rather than EVs. On the supply side, there is no major large project on the horizon. Once rapid growth in EVs and energy storage systems absorbs the current cobalt supply surplus, producers may well struggle to keep up with demand again.
Room for Asia, Europe while automakers look to reduce supply dependencies
While the epicentre has moved to different regions, Covid-19 has highlighted the over-dependencies in the battery supply chain on certain regions and countries for raw materials - for example, on South Africa for cobalt exports - and for battery cathodes and cells. The latter was particularly true during the early part of the pandemic, with the battery manufacturing hub based in China, Japan and Korea.
Automakers will naturally look to diversify inflows, having already been aware of the risks associated with lengthy supply chains but highlighted by Covid-19.
“The European OEMs will want shorter supply lines and the trade war and Covid 19 have highlighted the danger of extended lines so I think we will see more of the middle of the supply chain being developed in Europe,” Adams said.
That does not necessarily mean producers in Asia will experience reduced demand for their products.
“Automakers will choose to buy from different sources globally rather than one to guarantee their supplies, but that will not impact the investments in battery production in China too much,” price reporter Carrie Shi said.
“The EV market is big and it’s going to get bigger so will see both [Europe and Asia] continue to grow, but there’ll be more of a balance in the future, I think,” Adams said.
Nickel supply concerns come into play longer term
The main impact of Covid-19 for nickel projects in Indonesia has been the restriction of Chinese expat workers returning to Indonesia to continue plant construction, which could cause a temporary delay. The big question for the lithium-ion battery outlook, especially for NCM batteries, is whether the new HPAL (high pressure acid leaching) projects can come into production on time, within budget and operated at capacity.
Nickel sulfate cannot be made economically from the nickel units obtained from nickel pig iron or ferro-nickel. The production of nickel that can be used to make class-1 nickel is fairly widespread but Indonesia has become a key player in recent years, therefore, the lithium-ion battery industry is likely to become dependent on it while demand for nickel increases.
Lithium probably trading around a price floor, but any meaningful increase still some years out
Some lithium producers have already begun to cut their output or review plans to scale up production in response to low prices before Covid-19. The market is now likely to face more sustained pressure, given the likely delay to EV adoption as a result of the coronavirus.
Fastmarkets’ price assessment for lithium carbonate 99.5% Li2CO3 min, battery grade, exw China stands at 41,000-44,000 yuan ($5,744-6,165) tonne, as of May 21, down from 45,000-51,000 yuan per tonne at the beginning of the year. Lithium prices are more than 75% lower than highs seen in late 2017.
The price declines seem to have left little room for further price weakness, especially for material produced from spodumene, though further declines cannot be ruled out, especially if producers, including those producing from brine and mica, need to generate cashflow.
Suppliers may also be facing push back from their customers who are asking for delayed shipments, creating stock build-up despite earlier announced restraint, Adams said.
“Producers have been holding on to excess stock, which avoided a flood of material [into the market], but we will need to burn that stock off before we see a tighter market,” Adams said.
Improved lithium demand will depend on household and business confidence, and how quickly Covid-19 can be brought under control and continually managed.
“A lot of producers are probably struggling at these kinds of prices but likewise we don’t expect too much recovery. A combination of stocks throughout the supply chain and idle capacity will mean prices are capped for a period. If you go out a couple of years, then the market can start to pick up,” Adams said.
The next webinar in Fastmarkets battery raw materials series, “How Covid-19 has impacted the lithium market,” will take place on June 23. Click here to sign up.
To listen again to the first webinar in the series, “Covid-19 and the battery raw materials supply chain”, click here.