This latest episode in the Metal Movers series visits the world of battery metals, examining the global supply/demand landscape for lithium and cobalt.
Tune in as Anuradha Ramanathan, Deputy Editor – Minor Metals, and Thomas Kavanagh, Associate Editor - Battery Metals, dive into a discussion on two crucial battery metals – lithium and cobalt. The podcast explores near and medium-term demand, the impact of supply tightness, upcoming projects that could shift the current import/export dynamic, as well as industry specifics like Johnson Matthey’s exit from the EV battery space.
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Anu: Hello everyone and welcome to "Metal Movers podcast." This podcast is brought to you by Argus Media, a leading independent provider of energy and commodity pricing and market intelligence. My name is Anu Ramanathan and I'm a deputy editor in the minor metals world. And joining me today is Thomas Kavanagh, our associate editor and battery metal specialist. Hi, Tom, welcome.
Thomas: Hey, Anu.
Anu: In this episode of Metal Movers, Tom and I will be taking a closer look at two of the key battery metals, lithium and cobalt. Both these metals have seen rapid price increases this year because of increased demand and side supply. So, let's dive deeper into each of these metals and their supply-demand landscape. So, Tom, let me ask you what does demand look like for lithium in the near term and where's all the supply coming from to meet this demand?
Thomas: Yeah, lithium's had an interesting year. The prices for lithium surged over the last year, they hit a record high of $25 to $25, $50 per kilogram cif China on 16th of November, which is an increase of around 229% from January's average of $7.68 per kilogram, cif China.
I think it's really interesting, I mean the reason why this is obvious is because of the electric vehicle revolution and, you know, the sort of compounding speed of that. The changes, which have taken place in China and Europe, have gone beyond anyone's expectation over the last couple of years. I think people didn't anticipate just how quickly companies and consumers would adopt these vehicles, especially in light of the pandemic, you know, the wider impact of the pandemic on wider car sales just hasn't been seen in the electric vehicles market. In fact, it's gone from strength to strength. And that has meant that lithium has struggled to keep up with the growing momentum in that market.
Anu: Right. And this, obviously, translates into actual demand figures for next year. It's SQM, one of lithium producers have targeted an increase to 180,000 tons by next year, lithium carbonate equivalent. What else are you hearing for further out in the mid-2020s?
Thomas: Yeah, that's correct. I mean SQM, being one of the biggest producers in the world, as you said, have forecast a $50 rise in their output by the end of next year and they expect, you know, demand to increase on a par with that. I think there are other producers looking to open sort of in the mid-decade to try and keep up with this trend in Europe and the U.S. But, at the moment, those projects aren't online and they're not gonna be online until 2022-23. So, you're looking, by the middle of the decade, for some of these localized projects in Europe and the U.S. to come online. But, in the meantime, the market remains quite concentrated in terms of projects in Australia, Chile, and mainly, you know, China with their own supply for themselves.
I think that means that we may well fall into a deficit over the next couple of years, maybe even next year. So, one day, hopefully, those products will come online and keep up with the surge in demand. But, at the moment, we could see a deficit forming in the market in the next couple of years.
Anu: That seems to be the general expectation from the market as well. There's an Australian company Cobra and they've said that they expect deficit to rise to more than 20% over the next 5 years. We've also seen that new projects are in Europe and the U.S., so, maybe the concentration of lithium projects might not only be in Australia, Chile, and China but also in Europe and the U.S. Are there any other sort of exports that you'd see coming online in the near future?
Thomas: Yes, I think there are some large projects coming online at the end of 2022 in Australia, the Wodgina Spodumene Project with 750,000 tons per year, which is a joint venture between U.S.-based Albemarle and Australia's Mineral Resources. Albemarle's also raising its capacity at La Negra 3 and 4 projects in Chile which will have a combined capacity of 40,000 tons per year for lithium carbonate when commercial operations begin in the first half of 2022. Again, that's concentrated supply in Australia and Chile, so, it remains to be seen whether the market can spread out more.
And one of the important things to note is that a lot of the battery producers are looking for localized lithium supply to cut down on their carbon footprint. So, I think, you know, U.S. and European battery producers would be more keen to look towards the more localized suppliers when they come online in the middle of the decade.
Anu: And another thing that I think all the new markets, EVs, automotive, any of the electronics metals, you see that sustainability is a key concept in all of these mining projects, or at least their supply chain. And given that one of the primary sources of this metal is in Chile, how does Chile control this production and how much does it account for in terms of global supply?
Thomas: Yeah. I mean the exports from Chile account for around 65% of global lithium carbonate supply from January to August. And 61% of that was to China and South Korea. So, again, it's still a pretty centralized global supply chain at the moment. I would expect that that would open out over the next few years.
Again, and while China can probably get plenty of its lithium from Chile and its own resources, European gigafactories, U.S. gigafactories are gonna be looking towards, you know, those projects in Germany, and Nevada, and places like that.
Anu: So, we're going to see higher demand, tighter supply, possibly a deficit in the near term, but also a diversification of sources of supply into various other regions other than Australia, Chile, and China in the near term?
Thomas: Yeah, and if prices stay the way they are, you know, the incentive is there for these producers in Europe and the U.S. to continue. If prices fall back down, then it would be more difficult to see, you know, profits of those producers. So, it's in the interest, at the moment, for those prices to stay high so they can justify investment decisions and so forth.
Anu: And it's a similar story with cobalt [inaudible 00:07:50] with prices rising. First, the question is where is production going to ramp up from and is this price very sustainable in the near term? What are your thoughts?
Thomas: Yeah. So, we just saw cobalt metal past $30 per pound. And it's been rising steadily over the last few months basically because of a tightness in the metal market. You know, China are importing a lot more metal, they don't see a profit case for producing their own metal from hydroxide because hydroxide prices and payables are so high at the moment. So, the metals market's quite tight.
Speaking to, you know, industry participants, there are a lot of large consumers that have either signed long-term contracts for cobalt metal or are looking to sign long-term contracts and have failed to sign them over the last month. So, that tightness is probably gonna translate to next year as well. When large consumers are in the market, like chemical producers, battery producers are in the market looking for cobalt metal, it looks as though they're now trying to pick up as much cobalt units as possible, not dependent on what type of metal they use. So, traditionally, it would be briquettes and cathodes that they've been using to dissolve to sulfate. Whereas, we just saw with the deal between FREYR and Glencore that they were happy to take on some more of that alloy grade material. Which means that the producers of alloy grade...you know, the producers of super alloys who use the alloy grade material may find that they come into competition now with the cobalt chemical producers for the battery market. Which, again, just adds to the tightness and the pressure on prices to rise.
Anu: And that's from sort of the demand side, what about the supply side from DRC? We've recently heard that the DRC Mining Ministry is revising some of its contracts and probably, you know, suspending all the awarded mining licenses. Is that going to play a role in the near term?
Thomas: Well, they've made noises about reviewing some of these contracts that were set up under the old Kabila regime. Whether they follow through with that is another story, there tends to be periodic noises from the DRC government about renegotiating contracts and things like that. But they usually come to some sort of agreement with the mining companies. Because it's not in their interest to shut down these mines, right, they are some of the biggest sort of industries in the DRC. So, I mean it's worth watching but I wouldn't say that they're gonna shut down the mines as of yet, it's just that they are looking to review some of these contracts that were rewarded.
The bigger problem in the DRC is actually to do with, you know, ramping up mines. So, Matanda [SP] was supposed to be ramping up next year. I mean it will do and it is producing material but it can be difficult for mines in the DRC to get the staff in to be able to ramp up properly, and there are also logistical issues with equipment and moving material across borders and things like that and COVID restrictions as well. So, it's not an easy time to ramp up a mine in the DRC but it is necessary to continue keeping up with the demand growth for cobalt. So, that's why we're seeing a tight hydroxide market and then internal tight metals market as well.
Anu: And that seems to be the case with the reflection on the pricing. Prices go up and, once they reach a particular level, you see that more production gets ramped up to meet the increased demand. Where are you seeing the risks in the near term for the cobalt market?
Thomas: I think that the period of maximum risk for sort of a sudden surge in prices would probably be just before Chinese New Year and the Olympic Games. I think that, traditionally, in that period, there's quite a lot of buying interest. And buying interest in such a tight market as cobalt, at the moment, could probably lead to price increases.
But then cobalt rising too fast is not in the interest of some cobalt producers because it does then lead to the risk of cobalt replacement, battery makers looking at their chemical mix and seeing LFP or sort of lower-cobalt chemistries as a more attractive battery chemistry. So, there are those things to consider as well. But it's a tight market and there could definitely be some price increase during that period.
Anu: And it's interesting you say that, once the prices start increasing or the swift increase in prices means that the industry might start looking for replacement options, but, in one particular place, Johnson Matthey has taken an entire U-turn by planning to sell its battery business. What have you heard in the industry and how has the response been to this?
Thomas: I think for Johnson Matthey...I mean their share price tanked afterwards and that's because they were pulling out of a future industry with huge gross potential. But I think for them, looking at some of the other producers already established in the market, you know, your large Chinese firms like CATL and others like BASF, they just concluded that they couldn't build a business that was competitive enough.
Now, whether that has anything to do with environmental worker safety legislation, things like that, is yet to be seen. I think their project was, obviously, in the UK, so, they potentially wouldn't be subject to EU legislation in that regard. But then maybe they felt they couldn't be competitive because of issues surrounding BREXIT. I think for them, they justified the decision because they thought that they would be better off focusing on hydrogen and other things that they have more experience in. But it's definitely a blow to the UK sort of independent battery supply chain. And now it just remains to be seen whether they can find a viable buyer for their battery business.
Anu: And this, obviously, spells an opportunity for other companies to step in. Are there any companies who would be interested in this battery business or who compete in the same space as them?
Thomas: There's plenty of companies that are probably looking at it, I couldn't give you any names of the companies that would be looking at it right now but I'm sure that, you know, some different chemical producers and maybe even gigaplants would be looking at the business and saying, "Well, maybe we could benefit from owning some of these assets." But, yeah, it remains to be seen.
Anu: Well, that's an interesting news as well for the market seeing that there's a company which is selling, as you said, a growth industry. So, just to sum up, lithium demand's going up in the near term but there's possible supply deficit in the market coming in, we might see more projects coming online as prices go up.
It's a similar picture for cobalt as well with prices rising, but the question is whether other companies and consumers would start looking at replacing cobalt with another metal or materials in the battery space, which should actually then go on to hit demand?
Thank you all for listening to our podcast. And if you want to hear more about various other metals and commodities, please go to argusmedia.com.