Raw Materials and the Battery Market

May 22, 2019 | Raw materials pricing and supply hugely impacts the battery market, and William Adams, head of battery research at Fastmarkets Research, argues that lithium and cobalt pricing is evolving, thanks—in part—to the downstream supply chain. A shift is coming, he predicts, from 1 to 1 pricing, to pricing via a PRA, to Exchange pricing.

On behalf of Battery Power Online, Craig Wohlers spoke with Adams about what’s driving the battery materials market, how closely the market is tied to electric vehicles, and what the future may hold five to 15 years from now.

Editor’s note: Craig Wohlers, a conference producer at Cambridge Innovation Institute, is planning a track dedicated to Global Battery Raw Materials at the upcoming Advanced Automotive Battery Conference in San Diego, June 24-27. Adams will be speaking on the program. Their conversation has been edited for length and clarity.

Battery Power Online: William, thanks for taking the time to talk. What does your outlook on lithium and cobalt demand over the next five years look like?

William Adams: Well, generally I’m bullish, I think you have to be. We’ve already seen EVs grow in the 60% to 100% area, depending on region. I think in the short term there may be some bumps along the road and we might get a bit of disappointment with some of the month-on-month data, but I see that more as being noise, like when we’ve seen the subsidy changes. We’re waiting to see what the reaction will be after the later subsidy changes. I think April’s EV [electric vehicle] data for China, NEV [new energy vehicle] data for China came in at about an 18% increase year-on-year. 2018 as a whole was around 80%. That might just be a factor of the general auto market in China is very weak, so at least they’re seeing growth in the NEV market, but it does seem to have slowed down. We saw this last year, there was a bit of a slow down after the subsidy changes last year, but then they shot up again, and I expect we’ll see that again later on this year.

Even with the UK we saw—after they dropped the grants for the plugin hybrids last year—they suffered this year. But again, I think the whole move will be that there’s nothing to worry about really on the EVs. It’s just going to go from strength to strength.

We’re not at a stage where EVs are mainstream at the moment. So, we’re seeing these very strong growth rates now; most people are probably looking at a 35% compound average growth. We’re looking for EV demand. When you get into the stage where they become more mainstream—we’re looking for that around 2023, 2024 time—then I think it really is going to be a very powerful force on the demand side. As we get to cars becoming more mainstream, we’re going to have obviously cars with larger driving ranges, and I think there will be a shift from plugin hybrids more towards battery-only EVs.

How will this impact the raw materials markets?

With the subsidy changes it does look like there might be a bit more of a pushback into the lithium ion phosphate batteries, so that could be a bit of a headwind for the likes of cobalt and nickel, but again, I think it’s going to be short term impact. We’re strong, looking bullish for all the battery raw materials really.

For lithium, we’re looking for demand to grow to about one million tons by, say, 2025 from about 260,000 tons in 2018. That’s not just for EVs obviously; that’s for the whole market. Our numbers for cobalt are looking at about 120,000 tons now, looking for that to all but double to about 210,000 tons in 2025.

What do you think pricing is looking like in your perspective?

At the moment it’s soft. So, if we’re looking at lithium carbonate spot prices on CIF [cost, insurance, and freight to] China, Japan, Korea, then they peaked at $20 per kilo in the first quarter of last year. They’ve since dropped off to $12, so a 40% drop. We expect them to remain low, continue to work lower this year and probably next year, before picking up again around late 2021, 2022. I think that will be in anticipation of the market swinging from where we think it is now in the supply surplus into a more balanced market in late 2022, 2023, and then moving into a deficit again towards ’24, ’25. We think cobalt prices are going to follow a similar path.

What we’re seeing in both metals is they’re fairly small metals on tonnage terms, compared with some of the base metals. But what you have seen last year was some significant increases in, or new supply coming on stream.

With cobalt, obviously Katanga is ramping up to be a large mine. If it’s around 25,000 tons, that’s almost, 25% of the market, and then on top of that you also had Eurasian Resources Group ERG, which is a 12,000, 14,000 ton market. Add those together, and you’ve got a massive supply response. Now we’re in that period where we have to wait for demand to grow to absorb that extra supply, we’re expecting very strong compound average growth rates on demand. It won’t take long, but the supply increases were so large that it will take some time, it’ll mean that price is under pressure for a while.

And the same with lithium. You saw all the Australian hard rock producers coming on stream, as well as in Brazil. So that increased the amount of raw material into market. Going hand in hand with that, we think the Chinese converters have been more capable of producing that type of battery grade material need by tier one battery manufacturers. So, we’re in that oversupply situation again.

But although we’re in supply surpluses now, it’s not going to be long before we could be facing significant shortages again. Especially considering how long it can take now to bring on a new greenfield site, especially with all the environmental sides of things as well.

I think the low-price environment now, and the fact that the banks aren’t overly pushing themselves to provide development finance for these projects, there is a danger that not enough money is going in into the next-in-line projects, or the next-but-in-line projects, and that could hit at exactly the same time when we see EVs becoming mainstream.

You haven’t seen the large mining conglomerates getting involved in the lithium space to any great extent, and I think the money’s going to have to come from either the OEMs or from the other miners, who will be more willing to put their money forward because they can see that they’re going to need those raw materials. They’ve put in billions and billions into their EV programs, and the last thing they can afford is then not to have the right materials.

If eventually lithium becomes an exchange-traded product, then that might facilitate the banks more, they might get more interested in that if they can start hedging the lithium price risk as well.

Do you think the automotive sector’s the main driver here, just in general?

Yeah, it certainly is; it’s going to be the main one. As I said, we were looking at compound average growth rate of 35% up to 2025; that might be conservative. Certainly some of the people we’ve been talking to recently have been looking at higher numbers than that.

But I think the other area that is going to be important is the energy storage system, and we expect that actually to grow at even faster growth rates than EVs, but off an extremely low base. It all sort of fits together, because as you have more need for energy, you’re going to have more renewable energy produced. The percentage of solar and wind energy is going to become larger as well, and because of the inherent nature of that, it’s going to require more energy storage to store up the energy, obviously, when the wind isn’t blowing and the sun’s not shining.

I think people are so concentrated on the EVs, that they might be surprised at how the energy storage system picks up as well.

Right. How do you view where trucks and buses as well as the light EVs fit into the scenario, as far as contribution to spurring that growth?

I think they’re all important. I suppose when you’re dealing with heavy duty trucks and buses, and things like that, the battery sizes are that much bigger. If you’re looking at the smaller end, the E-bike, I think that’s probably a fairly saturated market in China at the moment, but there’s probably room for E-bikes to grow elsewhere. But I think one of the areas where you will see growth of the lithium ion batteries is more of those bikes will change from having lead acid batteries to lithium ion batteries.

Power tools have obviously gone from electric cords to batteries some time ago, but you’re seeing more of that now in things like garden equipment as well, whether it’s mowers, or buggies, and things like that. So I think it’s very much moving all towards lithium ion batteries.

That’s great. I think the overall approach is very different on a heavy-duty truck, for example. The requirements are different, and it just creates another ecosystem that has a different profit margin than, say, on the automotive side. There’s some ease of the strategy on the specialty side it seems like, to some extent.

Yeah, and I think on buses is a classic example. You know exactly what the bus’s route is going to be and therefore you can plan the routes and recharging systems around the battery capacity.

Focusing a bit on automotive, what are the biggest barriers to full adoption?

People have range anxiety, but I think range anxiety is certainly being tackled now. There were questions, “Can people charge it at home? Will they need to?” But if you’re getting a car that actually operates for 300 miles or so, most people probably only need to charge that car three or four times a month now. So, it doesn’t have to necessarily be done at home, it can be done when they’re doing the shopping, or if they’re out in town, or even at work. So, I think a lot of those issues, that people considered barriers, aren’t as big, or will be quite easily overcome.

Is infrastructure still a significant barrier to adoption?

It depends on where you are. I have an electric vehicle, and we only charge it at home, and that works really well for us. In cities like London people aren’t going to be running wires across the pavement and things. But in China, where a lot of cars are parked in the basement, and the basement’s already got the electric there, it’s not such a big deal. So I think the extent of the hurdle will be different depending on where you are.

Do you think that the price of the vehicle will be much of a barrier? We’ve obviously seen Tesla in the luxury market have some success on that front. Success is relative I suppose, but you’ve seen other more mainstream vehicles at lower prices not do as well. Where do you see price fit into adoption, at least on a consumer level?

I think that is important. A lot of people you meet, they wouldn’t necessarily go and buy an electric car now if it’s going to be $15,000 more expensive than an equivalent petrol or a diesel vehicle. So I think that is an issue, but again, it is new technology, and people are attracted to new technology. A lot of people I’ve spoken to say next time they look at buying a new car then they will certainly consider an electric vehicle; three years ago that probably wasn’t the case. So I think people are getting used to that, and I think the prices are going to be coming down and that will set the agenda as to when EV become mainstream. I think a combination of falling battery prices and falling vehicle prices, plus the economies of scale, we’ll start to see more of an uptake around ’23, ’24.