European battery materials producer Umicore today warned of a looming supply shortage for cathode active materials (CAMs) in Europe and the US, adding that it has begun to hedge lithium in order to reduce exposure to price volatility.
"Today already in Europe and North America, supply and demand are not balanced between the needs of electric vehicles, batteries and battery materials, and the capacities of CAM producers," chief executive Mathias Meidreich said.
"This gap is bridged by importing materials from mostly Asia, but this will be more and more difficult because of three things," he added, pointing to government requirements on local raw material supply, carmakers' requirements on the CO2 footprints of their suppliers, and end-customers' demand for localised and trustworthy supply chains. The combination of these factors all make the current import-dependent dynamic unsustainable, according to Meidreich.
Umicore estimates that in 2022, Europe faced a 81GWh shortfall in CAM supply and in the US, there was a 34GWh shortfall. The company expects that by 2025, that shortage will reach 93GWh in Europe — or 28pc of regional demand — and up to 101GWh in the US, which is about 43pc of the country's projected demand.
By 2030, the company forecasts a CAM shortage of 401GWh in Europe, equating to 38pc of projected demand. However, in the US, supply is expected to catch up faster, with just a 4pc gap between supply and demand by 2030, or 28GWh.
"The lessons learned from the microchip crisis mean customers want reliable local supply chains," Meidreich said.
Higher battery metal prices have affected Umicore's costs and profits in the past year, but it is now hedging lithium with the aim of lessening this risk in future. It marks the latest step in the lithium market's gradual evolution, having historically been an industry dominated by long-term supply contracts and previously seeing far less price volatility than in the past two years.
"Going forward, [our] lithium pricing exposure has been substantially reduced as we started hedging lithium, as we do for other battery metals such as lithium and cobalt," chief financial officer Wannes Peferoen said today.
Lithium prices surged last year, with both carbonate and lithium hydroxide hitting record highs on supply concerns. Argus last assessed battery-grade lithium carbonate prices at $64,000-66,000/t in-warehouse Rotterdam and lithium hydroxide prices at $74,000-76,000/t in-warehouse Rotterdam on 14 February, down from the highs of November 2022 as Chinese demand eased and economies slowed in the EU and US.
High battery material prices boost revenue
The company saw strong growth in revenue during 2022 because of an "exceptional" pricing environment for its cobalt and specialty materials business.
Its battery materials division registered a 27.67pc year-on-year jump in revenue to €1.28bn ($1.37bn). Total group revenue rose by 10pc over the period to €4.2bn.
Last year, Umicore produced 14,000t of cobalt in various forms from its plants and joint ventures in Belgium, Finland and China, up from 13,100t in 2021.
European cobalt prices reached three-year highs in the first half of 2022, with chemical-grade metal rising to $39.40-40.10/lb du Rotterdam on 19 April. Overall, this price averaged $30.86/lb in 2022, up from $27.61/lb in 2021, according to Argus assessments.
The company is developing its CAM plant in Nysa, Poland, and therefore expects to increase its expenditure on feedstocks — battery metals and chemicals — in 2023.
"We are still in the ramp-up stage," Meidreich said. "The working capital needs in Nysa will increase towards the end of the next period. Ramp up will start in 2023-24."
