Battery growth turns focus on raw material supply

The expansion of electric vehicle battery manufacturing in South Korea, India, Europe and the US may reduce reliance on China, but the absence of a sustainable raw materials supply chain could be an obstacle, delegates at the Argus Metals Week heard.

"The battery raw material deficit (in Europe) will have to be taken from China," Michael Insulan, senior market analyst at Eurasian Resources Group said. "Even if you build a cell plant in Europe, you have to get the precursor from China. It is impossible to avoid this reality," he added, noting that around 90pc of precursor passes through China at some point in the supply chain.

Most battery precursor chemicals, such as cobalt and nickel sulphate, are also produced in China. Few projects in Europe and the US will be able to challenge China's dominance in precursors in the next five years, according to Insulan, who said you could "count them on one hand".

"Europe is starting to gain pace with new factory builds... however it has no supply chain of metals inputs assured," Christopher Ecclestone, principal and mining strategist at natural resources researcher firm Hallgarten, said.

Given the EU's commitment to cutting transport emissions, its EV uptake will have to rise sharply this decade, boosting demand for raw materials.

Downstream drive

China is also looking to dominate downstream, through producers such as BYD and Nio and large investments and partnerships with European and US carmakers. Tesla has just opened its second Gigafactory in Shanghai.

"You are going to own a Chinese car," Anthony Milewski, chief executive of Conic Metals told a panel discussion, "It may be under a European name, but make no mistake — it will be Chinese made."

Low and volatile metal prices and a lack of investment in long-term mining projects in Europe have resulted in a reliance on lithium, cobalt and manganese imports from outside the bloc.

More than half the world's cobalt is produced in the Democratic Republic of Congo, while Australia and Chile are the largest producers of lithium.

Regarding nickel, several market participants said a sustained period of higher prices is needed to encourage investment in production growth. Estimates vary regarding the exact price thresholds required to spur funding, but one conference survey indicated that prices below $16,000/t make investment highly problematic, and prices would need to hold at or above $20,000/t to encourage financing. The LME three-month nickel contract stood at $13,080/t yesterday.

Meanwhile, countries including South Korea have started to ramping up growth plans in the battery and raw materials industry. Although some Indian companies are investing in electric vehicle battery manufacturing projects, no battery materials supply chain is in the offing yet, Hallgarten's Ecclestone said.

As the extent of these supply pressures becomes clear, many battery makers, EV producers and governments are looking to diversify supply chains.

The EU recently earmarked €3.2bn of funding to help companies develop the battery supply chain.

By Anuradha Ramanathan, Ellie Saklatvala, Thomas Kavanagh