Many in the battery raw materials market were likely happy to see the back of 2019, as it was a year characterized largely by falling prices and disappointing performances from both the EV and consumer electronics sectors, research firm Wood Mackenzie said in a research note Monday.
But interest around electrification shows no signs of slowing. The value chain of a new ‘green’ automotive industry is being built, from mines and refineries through to cell and pack manufacturing, Wood Mackenzie said.
While it’s still early days, investments and deals made in the coming months will be critical to EV adoption potential over the next decade.
Five things to watch in 2020, according to Wood Mackenzie:
1. Key EV markets to start growing again
In 2019, the world’s largest EV market contracted. According to the Chinese Automotive Manufacturers Association, NEV sales reached 1.206 million last year, around 4% lower than in 2018 and 20% lower than China’s target for the year. In the US, the reduction was equally noteworthy at around 10% y-o-y. A sluggish global automotive sector and changing subsidies were certainly contributing factors nevertheless its clear that EVs are not yet ready to stand on their own feet.
This year, several major automakers are launching ‘mass-market’ EVs on dedicated platforms, aimed at breaking down range and cost barriers. While Wood Mackenzie expects substantial quantities of these to trickle into the market in the second half of the year, annual passenger EV sales are likely to remain below 3 million. China’s move to postpone the complete removal of NEV subsidies this year will support EV sales but also highlights just how sensitive the EV market still is to subsidies and incentives.
2. Bigger and better batteries
Cobalt prices soared in 2018 and the push towards high-nickel, low-cobalt batteries was accelerated. Last year, China commenced the first large-scale production of NMC 811 cells to be used in the automotive sector. This year, Wood Mackenzie expects only a handful of EV models outside of China to opt for the high energy density technology until the safety challenges are fully resolved. Within China, 2020 could be the year that LFP chemistries get a comeback as significant energy density improvements make LFP a much more viable option.
Range anxiety continues to deter many consumers from purchasing EVs, with long ranges the preserve of high-end, luxury cars. Automakers are not unaware of this and nearly every new model boasts a bigger battery offering more miles per charge. Wood Mackenzie expects this trend to continue through the short term. As with most EVs, the first configurations to be sold are the highest specification models, typically using the largest battery pack. The average pack size over the next few years could be boosted as these specifications are front-loaded into the market.
3. Lithium – another poor year
Not even lithium producers are anticipating a rebound in the lithium market this year. Compared to many bullish demand expectations, 2019 was particularly weak, and excess in the market pushed prices downwards. Nearly every lithium reference price fell by at least 30% and reported sales prices followed the same trend. Wood Mackenzie forecasts price declines to extend over the next twelve months. A temporary lull in the market might be exactly what is needed for the LME to launch its new lithium contract this year. The contract is not going to be welcomed by all lithium players; however, Wood Mac believes it is a step forward to increasing the transparency in lithium pricing.
Oversupply was the common theme over 2019 and despite several closures and expansion cut-backs, Wood Mac analysts do not expect any tightness through the short term. The hard-rock producers have demonstrated how quickly spodumene concentrate can be brought online, but a greater level of discipline is now required for 2020. Some higher cost producers will feel the pressure this year as spodumene prices fail to recover. The economics of new projects now look less attractive and junior miners will increasingly have to emphasise their green credentials and strategic locations, something the battery and EV space is being heavily scrutinised on.
As for the brines, 2019 supply growth was higher than in 2018. The same will be required again this year for brines to keep their share of the market. Low prices might not weigh as heavily on the brine producers, typically sitting at the bottom of the cost curve and having produced at these levels before. The ramp-up of South American brines will most likely be slower than guidance with water rights and technical challenges still key issues.
4. Cobalt – can we fill the gap?
Last year, DRC mined cobalt output contracted as the industry contended with both the slowdown in demand from EVs and electronics, but also ‘indigestion’ after the huge supply response in 2018 that had overstocked the supply chain. Weaker fundamentals naturally impacted price levels, with the LME cash price averaging $33,290/t ($15.1/lb) for the year. This weak pricing environment, and higher operating costs led industry-leader Glencore to place its Mutanda mine on care and maintenance from late last year. With Mutanda currently the largest cobalt producing mine in the world, the company has left quite a large gap to fill. Wood Mackenzie says it be done– but with risks.
Mutanda’s suspension will place more of a burden on Glencore’s other DRC operation, Katanga. Katanga has been dealing with quality issues related to uranium content over the last year, yet interim solutions appear to be bearing fruit. Wood Mackenzie analysts estimate around 5 kt of cobalt in hydroxide may have been exported last year, versus production of 14kt. Glencore is currently targeting production of 27 kt of cobalt in hydroxide in 2020 from Katanga – with export levels dependent on the continued successful implementation of de-bottlenecking schemes.
Aside from Glencore, the most likely source of ‘replacement’ tonnes is ERG. Its Metalkol RTR plant got off to a slow start last year – dealing with both quality issues and the poor market. We estimate exports of just around 3.4 kt in 2019, versus capacity of ~14 ktpa. Yet RTR will need to at least double shipments in 2020 if we are to avoid a large deficit. Other major players such as CMOC’s Tenke Fungurume look unlikely to be able to materially increase output, while new supply from Chengtun and the recently started Deziwa operation will also be required to meet demand growth.
Wood Mackenzie’s base case view is that mined output returns to 2018 levels. Analysts do have a notional deficit of some 2 kt forecast this year, Wood Mackenzie expects this is necessary to further draw down the stocks that have accumulated through the cobalt value chain. The firm believes price risk is on the upside this year should the ‘major producers’ fail to ramp up, and higher prices are required to incentive higher-cost supply into the market.
5. Graphite – after the Balama drama
While key ‘battery metals’ like lithium and cobalt have suffered from the slowdown in EV sales in the all-important Chinese market, for the likes of graphite – a 1 million tonne plus industry primarily driven by the steel sector – the fundamentals are more complex. In the natural flake market, last year saw a steady ramp up in exports from Syrah Resources’ Balama mine in Mozambique. This gradually overwhelmed the previously insulated Chinese flake market and eroded price levels as the year progressed. The extent of the oversupply eventually saw Syrah trim its own output in the final quarter, and its guidance for 2020 for 120-150 kt.
As 2020 gets underway, there are many questions associated with the flake market. To start, does the natural graphite industry even need a mine as large as Balama right now – which at full capacity (350 ktpa) would be larger than current global consumption of natural graphite in batteries? And is there a future for the other flake graphite projects looking to move into production in this environment – particularly given a seeming resurgence in interest in synthetic graphite?
Medium-term demand prospects for graphite remain strong, Wood Mackenzie says, with disruptive technologies like silicon or even lithium metal-based anodes unlikely to dampen growth anytime soon. However, with this fledgling sector already overwhelmed with supply, 2020 looks likely to be another challenging year. With margins being squeezed, and an increasing focus on sustainability encouraging ex-China sourcing, many graphite miners, including Syrah, will continue to move down the value chain towards high-purity spherical graphite.
Chile’s state-owned Codelco, the world’s no.1 copper producer, filed with regulators on Friday a request for environmental permits to start exploring for lithium at the Maricunga salt flat, the country’s second largest in terms of reserves.
The sought licences would allow Codelco to determine concentrations of the battery metal on the 90 square miles (145 sq. km) area, estimate the size of the resource and identify necessary next steps.
The Santiago-based company announced last year a non-binding agreement with foreign-backed Salar Blanco to explore a joint venture in Maricunga.
Salar Blanco, which has its own holdings on the flat and is pushing forward with final environmental approvals, is 50% owned by Australia’s Lithium Power International, with smaller stakes held by Canada’s Bearing Lithium and local capital.
Codelco has for years tried and failed to get into the lithium business, as plans to overhaul its aging copper mines have taken priority.
On Thursday, the miner kicked off commercial production from the $759 million phase one expansion project at El Teniente, the world’s biggest underground copper mine and the sixth largest by reserve size.
Chile holds some of the world’s largest reserves of lithium, a key ingredient in batteries for electric vehicles. But the nation’s output has barely budged in recent years, as bureaucratic and environmental hurtles have stymied development.
The Maricunga salt flat is far smaller than the vast Salar de Atacama (less than 5% Atacama’s size), where top lithium producers US-based Albemarle and Chile’s SQM dominate.
At the World Economic Forum in Geneva, the Global Battery Alliance (GBA) on Thursday launched 10 key principles that have been signed by 42 global organizations – along with the ‘Battery Passport’ concept, a type of ‘quality seal’ on a global digital platform for sharing value chain data of batteries.
The first of its kind, the Battery Passport is expected to address areas including compliance with human rights and environmental footprints, the World Economic Forum said in a press release.
The principles are intended as the first step in a responsible, sustainable battery value chain as set out in the Global Battery Alliance’s “A Vision for a Sustainable Battery Value Chain in 2030.” Implementing commitments will be based on existing standards such as the Organisation for Economic Co-operation and Development (OECD)’s Due Diligence Guidance and economically viable considerations for a circular and low carbon economy.
At the Annual Meeting 2020, running Jan 20-24, 42 organizations, including businesses from mining, chemicals, battery, automotive and energy industries, representing annual revenue of close to a trillion dollars, along with international organizations and global NGOs, have agreed on the 10 guiding principles.
They include maximizing the productivity of batteries, enabling a productive and safe second life use, circular recovery of battery materials, ensuring transparency of greenhouse gas emissions and their progressive reduction, prioritizing energy efficiency measures and increasing the use of renewable energy, fostering battery-enabled renewable energy integration, high quality job creation and skills development, eliminating child and forced labour, protecting public health and the environment and supporting responsible trade and anti-corruption practices, local value creation and economic diversification.
“We all need batteries to power the clean revolution. However, we must ensure violations of human rights do not occur anywhere in the value chain, that local communities benefit and that battery production is sustainable. These guiding principles are an important first step to build a value chain that can deliver on this promise while supporting societies and economies at the same time,” said Dominic Waughray, Managing Director, World Economic Forum.
Organizations supporting the realization of a battery value chain that meets these principles include AB Volvo, African Development Bank, Amara Raja Batteries, Analog Devices, Audi, BASF, and BMW, the World Bank and UNICEF.
This alignment among key players in the battery market establishes the basis for a transparent accountability system. It will guide the development of a global digital battery information disclosure system referred to as the “Battery Passport”, which is designed to enable a transparent value chain, for example, with respect to human rights and the environmental footprint.
Germany is hoping to engage Bolivia’s next government in talks over a scrapped joint venture deal to develop the South American country’s massive lithium reserves, as members of its car sector struggle to meet electric vehicles (EVs) production targets due to a supply shortage of battery cells.
Both nations signed a lithium partnership in 2018 following three years of intense lobbying from Berlin, which said a small privately-owned company from Germany was a better bet than its Chinese rivals.
Bolivia’s state-owned lithium company YLB and Germany’s ACI System planned to install four lithium plants in the Salar de Uyuni salt flats, which hold the world’s second-largest lithium deposit.
The joint venture was also going to build a factory for EV batteries in the country, which is sitting on about nine million tonnes of lithium, or around 25% of the world’s known reserves.
The deal, however, was cancelled in November following locals’ protests and a change of leadership at YLB following president Evo Morales resignation.
Morales had fled Bolivia earlier in the month after losing the support of the military and police amid widespread protests over a disputed election. His supporters say he was the victim of an orchestrated coup. Opponents argue he was forced from power after manipulating the constitution to run for a fourth term in office then seeking to win that vote with electoral fraud.
Bolivians will choose a new president May 3 and Berlin is closely following related developments as the cancelled venture is considered vital for the German auto industry’s plans to develop electric batteries.
The new head of YLB, Juan Carlos Zuleta, said last week the deal would not be revived, adding that the state-owned company planned to apply strict limits to foreign investment in the extraction and processing of the key element for the production of the batteries that power EVs and smart phones.
Zuleta, however, doesn’t seem fully opposed to letting foreign companies as he noted that a similar deal with China’s Xinjiang TBEA was being reassessed. He also hinted recently that Tesla should be considering building a plant in Bolivia.
Demand for the white mineral is expected to more than double by 2025. The soft, light commodity is mined mainly in Australia, Chile and Argentina.
Bolivia wants to strengthen local know-how and become a producer, but its lithium is found at higher altitude and contain more magnesium (Mg) and potassium than in neighbouring Chile and Argentina, making the extraction process much more complicated and costly.
Uyuni’s higher rainfall and cooler climate mean that its evaporation rate is not even half that of Chile’s Salar de Atacama, where brine ponds evaporate quickly.
Germany’s push comes as some of its key auto industry actors are beginning to show signs of distress. Manager Magazin reported on Thursday that Daimler has been forced to reduce its 2020 production targets for the Mercedes-Benz EQC EV to 30,000 from about 60,000 due to a supply shortage of battery cells from LG Chem.
Daimler expected to sell around 25,000 EQC vehicles last year, but was only able to build around 7,000, the article said.
German Economy Minister, Peter Altmaier, has urged local industries to secure raw materials for electric batteries to reduce dependence on Asian suppliers.
Based on the Companhia Brasileira de Metalurgia e Mineração’s $10-million investment for R&D on the use of niobium in EV batteries, Roskill issued a report on the company’s prospects and those of the niobium market.
“With a global market share close to 80%, CBMM is now looking to develop new applications for niobium in order to secure new sources of revenues in the face of weakening steel markets; it sees EV batteries as one possible alternative,” the document states.
According to the analyst, the market for niobium in batteries could possibly reach 5kt of ferro-niobium equivalent (3kt of contained Nb) by the middle of the next decade.
Another potential growth market is that of nanocrystalline niobium, currently estimated at 2kt of ferro-niobium equivalent (1.2kt).
“These new applications are still very small when compared to CBMM’s total production capacity of 100ktpy ferro-niobium (60ktpy contained Nb),” Roskill says. “Growth in these markets depends on the progress of technological developments and the economics of commercial-scale ramp-up.”
The consultancy reports that CBMM is planning to expand its production capacity to 150ktpy ferro-niobium in Q4 2020 (90ktpy contained Nb), justified by sustainable demand growth coming from the steel industry.
The group is also considering further expansion to 225ktpy ferro-niobium (135ktpy Nb).
“No doubt, this incremental investment will depend on the future development of the steel industry in China, but it will also depend on whether CBMM’s expectations for new niobium applications materialise,” the document reads.
A new report by Roskill states that the lithium industry is in a waiting game. Suppliers are limiting capacity utilisation and expansions to see if prices pick up as demand grows and inventories go down.
Although the strategy is expected to provide significant opportunities, it’s not clear when it is going to be really effective.
The set of tactics -Roskill’s document states- comes in response to weakening prices for key lithium products, which have been experiencing a downward trend since last year. In December 2019, for example, lithium carbonate spot prices fell to their lowest monthly average since February 2015 at less than $8,000 a tonne, whilst average longer-term contract prices also continued their decline.
Similarly, hydroxide prices now average just over $10,000 a tonne and spodumene concentrate (6% lithium for hydroxide manufacture) fell by 3.5% last October to average $450–$510 a tonne. Overall, this represents a 45% drop in the last year.
“This pricing trend comes as a direct consequence of the supply of lithium feedstock from spodumene operations overshooting demand, which, when coupled with rapid expansions in mineral conversion capacity since 2017, has propagated downstream,” the market analyst’s report reads.
According to Roskill, even though miners have been taking action to limit oversupply and support prices, with many of them reducing or suspending production voluntarily or as a result of lower pricing, most are going to have to learn to adjust to the new market.
In the analyst’s view, besides closing the taps, proactive actions such as focusing on product quality, guaranteeing offtake agreements and maximising short term profit margins, seem beneficial for those that wish to take advantage of the uptake in lithium-ion battery technologies in automotive and energy storage uses.
Much like prices for cobalt, lithium and graphite, nickel feedstock for battery manufacture ended 2019 on a weak note, as a retreat in Chinese electric vehicle sales in the second half of the year and slower than expected transition to nickel-rich battery chemistries hurt demand.
Battery supply chain and megafactory tracker Benchmark Mineral Intelligence’s new nickel assessment details a nearly 9% fall in domestic Chinese prices for nickel sulphate during December.
The midpoint price for December was pegged at CNY 26,000 per tonne (~$3,770 at today’s rate) for >22% Ni ex-works material, but Benchmark says the price rebounded towards the end of the month on restocking.
At times in the third quarter sulphate actually sold at a discount to class 1 metal in China and for the year, prices are still more than 5% for the better.
Prices for nickel sulphate in the rest of the world also declined at the end of last year but premiums over LME metal prices were steady at the equivalent of $2,000–$2,450 per tonne (>22% Ni CIF Asia) according to Benchmark data.
Nickel metal traded on the LME went on a wild ride in 2019, from $10,715 a tonne it the start of January to above $18,000 in October, before ending the year $4,000 below its peak.
Benchmark says its sources noted premiums for nickel sulphate are expected to remain relatively stable during the first half of 2020 on expectations of further delays at BHP’s Nickel West project.
BHP decided last year to hold onto its Nickel West operations after many attempts to offload it, and is spending hundreds of millions of dollars switching its Australian operations to battery-grade production.
Last year, less than 10% of nickel ended up in EV batteries with 70% of supply goes into making stainless steel. Global nickel production is less than 2.5 million tonnes per annum.
Noram Ventures (TSXV:NRM) issued a statement this week saying that initial drill results from three of six drill holes completed in November 2019 on the Zeus lithium claystone property are higher than the current inferred resources.
“Drill hole 47 returned results of 29 metres at 1164 ppm Li, and drill hole 53 showed 54.9 m at 1186 ppm Li immediately below the 2019-02 inferred resource. These values are higher than the current inferred resource of 145 million tonnes at 1145 ppm Li,” the release states.
According to Noram’s CEO, Tucker Barrie, the company’s immediate goal is to outline a viable lithium resource that can support a mining operation that can produce 20,000 tonnes lithium carbonate per annum for 20+ years.
“We are encouraged by these Phase IV drill holes which will significantly increase our current resource. The deposit remains open to the south and east on the property where there are >2 km2 of untested ground,” Barrie said. “As well, we note the success of our neighbour Cypress Development Corp., which has a similar lithium claystone deposit and is making significant advances with extraction technology. This bodes well for the development of our Zeus deposit.”
The Zeus lithium property is located in Clayton Valley, Nevada, immediately adjacent and to the east of Albemarle’s Silver Peak lithium brine operations, currently North America’s only lithium producer.
The lithium deposit is within the non-refractory claystone of the Esmeralda Formation.
Annual cobalt production is only around 130,000 tonnes, mostly as a byproduct of nickel and copper mining. Some two-thirds of supply comes from the Democratic Republic of the Congo, where fears about political instability and the challenges of ethical sourcing combine to supercharge supply concerns.
Bloomberg reported Wednesday that Tesla is in talks to buy cobalt from Glencore for its third gigafactory, recently opened in Shanghai, according to people familiar with the matter. Tesla, alongside Google, Apple and others, were sued by a human rights group in December about artisanal cobalt mining in the Congo.
Neither the Swiss miner or the electric vehicle manufacturer, which is targeting production of 150,000 annual units in Shanghai would comment, but should the deal go through it would mark the fifth long-term supply deal made by Glencore over the past year.
In April, Glencore signed a deal with BMW to provide the German luxury vehicle company with cobalt from its Murrin Murrin mine in Australia.
Glencore also signed three other large, long term deals in 2019, with Korean battery manufacturer SK Innovation for 30,000 tonnes (enough to make 2m EVs with today’s cathode technology), Belgian chemicals giant Umicore and China’s GEM, a battery recycler.
Benchmark Mineral Intelligence, a battery supply chain and price reporting company, estimated that even before today’s report that the publicly announced agreements in 2019, alongside private deals, suggest that already “more than 80% of Glencore’s DRC cobalt hydroxide production are locked up in long-term agreements”.
If the Glencore–Tesla deal happens it would leave precious little for the spot market in the coming years.
But so far these developments and Glencore’s decision in August to halt operations at its Mutanda copper-cobalt mine in the Congo until at least 2021, have done very little to boost the market.
Considering that Mutanda is the world’s largest cobalt mine and responsible for a fifth of global output, the market response has been more than disappointing, with only a couple of months of rising prices.
Benchmark reports cobalt prices came under renewed pressure in December, most notably for cobalt hydroxide which plunged by more than 10% over the course of the month.
Cobalt hydroxide is usually produced at mines as part of the primary processing of cobalt ores and typically typically contains 20-40% of cobalt. The Asian import price of cobalt hydroxide was $20,800 per tonne at the end of the year according to Benchmark data.
That constitutes a 47% drop in price over the last year and compares to price above $80,000 a tonne mid-2018:
The weak price performance over the year has seen significant y-o-y increases in import volumes of cobalt hydroxide into China as refiners look to capitalise on low prices, with Jan-Nov imports in 2019 up 29% y-o-y.
The outlook for the short term is not rosy and Benchmark predicts further weakness in the Chinese market during lunar new year celebrations.
Spot trading will reduce significantly due to the long delivery lead times from the Congo which is typically associated with falling prices says Benchmark.
Another concern for cobalt bulls is weakness in China, responsible for every other EV sold around the world.
Changes to Chinese subsidies for hybrid and battery-powered vehicles – or new energy vehicles in local parlance – that came into effect mid-June had a dramatic impact on the domestic market.
Official figures released on Monday showed annual EV sales in 2019 dropping for the first time ever to 1.21m units, compared to 60% growth in the previous year.