Battery metals are critical over the next decade, Roskill says

The growing adoption of electric vehicles (EVs) is driving the increasing demand for lithium, nickel and cobalt – critical metals used as cathode materials for lithium-ion batteries in the automotive, energy and electronics industries. According to Deloitte’s Electric Vehicle Trends, EV sales are forecast to grow from 2.5 million in 2020 to 11.2 million by 2025, and to 31.1 million by 2030. Analysts from Roskill, a commodity research firm and a leader in critical materials supply chains, provide an outlook on battery metals’ markets over the next decade.

Lithium

Global demand for lithium carbonate — one of two primary forms of lithium used in EVs — is expected to exceed one million tonnes of lithium carbonate equivalent (LCE) in 2026, according to David Merriman, an expert on EV and battery materials at Roskill.

“To meet this increasing demand for lithium products, which is more than double that expected this year, we would need to see not just an expansion in output from existing producers but also new producers looking to commission new capacity,” he said in an interview. “This will require significant new investment in the industry.”

Over the medium-term, a significant amount of additional capacity will need to be brought online, which will require lithium prices to support the build-out and investment in new capacity either from existing producers or new producers.

Lithium carbonate prices fell to less than US$7,500 LCE per tonne in the first quarter of 2020 (the first time since 2014 and due to a fall in EV sales in China, the largest EV market, and a global reduction in EV sales because of pandemic-related mine lockdowns and disruptions in supply chains). But prices recovered to US$9,500 per tonne LCE by the end of 2020. But Merriman warns that the increase in prices could be a “knee-jerk reaction after a period of low lithium prices,” which forced many producers to suspend production and run down inventories.

The uptick in lithium prices towards the end of 2020 has led to a “domino effect” for many of the smaller operators, particularly within Chinese markets, looking for feedstock material to build up inventories to normal levels and has caused a small demand surge, he said. While this could be temporary, it will likely support lithium prices for most of 2021, he said.

“At the back end of 2021 and as we move into 2022, we expect lithium prices, particularly Chinese domestic spot prices, to drop back a little to the longer-term contract prices agreed between major producers and consumers.”

Chinese spot prices are likely to drop to about US$9,000 per tonne LCE, with contract prices edging closer to US$10,000 per tonne LCE, he said.

Towards the end of the decade, Merriman forecasts that the lithium market will move into a growing deficit of several hundred thousand tonnes of LCE and will require significant amounts of lithium supply brought online to meet demand growth.

This will require a fundamental change within the industry, particularly in the scale of development projects. “The industry is likely to shift from 20,000-tonne projects being the normal to 50,000-100,000-tonne projects becoming normal, and a scaling-up of investment to support that shift.”

The shift towards high-nickel cathode materials to increase battery energy density, Merriman said, is also accelerating demand growth for the more expensive lithium hydroxide, another form of lithium used in lithium-ion batteries.

Although there is a price premium for lithium hydroxide over lithium carbonate of about US$1,500-US$2,000 per tonne, he believes that lithium hydroxide will become the dominant lithium chemistry over the next decade. In the intervening years the balance between lithium carbonate and lithium hydroxide would depend on lithium-ion battery cathode requirements.

“We see the EV market breaking up into two segments. The lower-cost, shorter-range vehicles that use lithium carbonate, and the high-performance, longer-range vehicles with high-nickel cathode materials that employ lithium hydroxide.”

Merriman also foresees increased integration, with operations that combine mining, processing, refining, and assembly of finished batteries. “Although integration is likely to bring more investment into the market,” he said, “it will also reduce the amount of freely available lithium on the market as more of it is tied up in long-term supply contacts between producers and consumers, putting further upward pressure on lithium prices.”

Nickel

The increased size, capacity, power, longevity, and safety requirements of lithium-ion batteries used in EVs have led to a shift in the composition of battery metals, most notably in cathode materials, which are seeing increasingly higher nickel content.

Currently, about 70% of global demand for nickel is as an alloying metal in the production of stainless steel, which is expected to remain the primary source of consumption into the future, according to Jake Fraser, a consultant specializing in battery materials at Roskill.

Nickel sulphate, a highly purified nickel compound that helps deliver higher energy density in lithium-ion batteries, extending the driving range for EVs, will become the second-largest application for nickel in 2030, he said.

“Over the past several years, we’ve seen annual growth rates of over 20% for nickel sulphate and that has been primarily driven by the rapidly growing EV battery sector,” Fraser said. “We expect to see demand grow from around 90,000-100,000 tonnes contained nickel in 2020 to 2.6 million tonnes by 2040.”

The increasing trend towards nickel-rich battery chemistries such as nickel-manganese-cobalt-622 and nickel-manganese-cobalt-811 employed as cathode materials, will further support this growth in demand, particularly in European EV markets, he said. Fraser noted that new feedstocks will need to come online and new processing capacities added to avoid any sudden nickel shortages. 

The nickel sulphate industry is already responding to growing demand, with new capacity coming online in Asia and Europe. A ramp-up in nickel feedstock supply in Europe will primarily come from the Talvivaara nickel mine in Finland, he said. The mine is owned by Terrafame Ltd., which is looking to increase its capacity and become a fully-integrated mine to nickel sulphate refining operation. In December, Terrafame announced plans to open a €240 million (US$290 million) refinery, producing 154,221 tonnes of nickel sulphate per year, enough for one million electric vehicles annually, the company said. The plant is slated for commissioning in early 2021.

The global growth in demand for nickel sulphate will also be met from High Pressure Acid Leach (HPAL) operations in Indonesia. “China is investing a large amount of capital into developing these new mines, which will provide significant quantities of nickel feedstocks throughout the mid-2020s as they come online,” he said. 

However, these feedstocks are already being contracted, so most of it will be kept captive within the supply chain of investing companies, limiting the amount available on the open market, Fraser said, adding that this could present a challenge for Europe in sourcing new supply.

Given that much of the growth in nickel over the past decade has come from nickel pig iron, a lower-grade product geared to the stainless steel industry, Fraser believes it could become a feedstock material for nickel sulphate production.

The stainless steel sector could become a “swing producer or swing supplier” and an additional primary source of nickel feedstock and help to “stave off the risk of a looming bottleneck in nickel sulphate supply.”

In addition, the secondary market for recycled nickel will be “absolutely crucial” for the future security of supply, particularly for Europe, which has limited resources available for development or brownfield expansion.

Fraser noted that the economics of recycling plants are driven by the market price for nickel metal, with strong nickel prices needed to incentivize investment in the recycling industry.

Nickel metal is currently trading at US$18,000 per tonne. Over the past 12-18 months, the premium for nickel sulphate has been in negative territory, meaning the metal is “more greatly valued” than nickel sulphate.

“The price premium on nickel sulphate is not only driven by underlying metal prices, but there are unique commercial dynamics that drive price premia and is primarily underpinned by product quality,” Fraser said.

The nickel sulphate market is expected to be “finely balanced,” with a small deficit in supply supporting prices for the rest of 2021. However, the analyst predicts a strong supplier response moving into 2022, yielding a surplus of around 5,600 tonnes of contained nickel next year, and expects this to decline to about 1,600 tonnes by 2024.

He forecasts price premia for battery-grade nickel sulphate to be around US$2,000-US$2,200 per tonne on an average annual basis from 2021 to 2024.

Cobalt

Cobalt is vital for boosting the energy density and life of lithium-ion batteries, and its thermal stability prevents batteries from overheating and potentially catching fire.

Although several EV manufacturers, most notably Tesla, have announced their intention to reduce or eliminate cobalt from battery cathodes because of its scarcity and cost and ethical concerns around mining cobalt, Roskill Senior Analyst Brian Ziswa expects demand for the blue metal to more than double over the next decade. 

“We expect to see demand for cobalt to grow from 136,100 tonnes in 2020 at an average growth rate of 6.8% per year to 280,000 tonnes by 2030,” Ziswa said. “The expected growth in demand is mainly from its use in batteries for the automotive and portable electronics sectors, which accounted for 56.6% of total cobalt demand in 2020 and is forecast to reach 70% by 2030.”

Supply will come from expansions in existing operations, restarts of operations on care and maintenance, and the commissioning and ramp-up of greenfield projects. The analyst forecasts that existing operations will account for 183,000 tonnes of cobalt in 2030, of which more than 124,000 tonnes will come from mines in the Democratic Republic of the Congo (DRC).

Outside of the DRC, much of the mine supply growth will come from Indonesia, where cobalt resources are abundant, he said. These resources are being developed by mining companies like PT Halmahera Persada Lygend at its High Pressure Acid Leach (HPAL) operation in Obi, which is expected to commence commercial-scale production by the middle of the year.

Over a dozen cobalt projects are also under development in Australia, Zambia, and Canada. 

The cobalt market over the next decade will be dominated by copper-cobalt concentrate, he said, which is forecast to account for over 70% of the total mine supply in 2030.

About 83% of the total cobalt mine supply in 2030 will come as a by-product of copper (56%) and nickel (27%) mining, he estimated About 16% will be mined as primary cobalt products and from operations that use tailings and artisanal mining as feedstocks.

Ziswa expects the DRC’s dominance in the sector will continue over the next ten years, as ten of the world’s top 15 global cobalt miners operate in the country. The DRC is forecast to account for about 67% of the world’s mined cobalt supply in 2030. (Currently, the DRC accounts for about 70% of total global cobalt supply.)

“Cobalt mine capacity has increased significantly in the past three years in the DRC, mainly due to restarts and the ramp-up of some large-scale cobalt mining operations including the Katanga and Mutanda mines,” he said.

Should planned expansions at Glencore’s (LSE: GLEN) Katanga mine, China Molybdenum Company’s Tenke Fungurume mine, and Eurasian Resources Group’s Metalkol Roan Tailings Reclamation project in the DRC proceed, then the combined operational capacity could reach 96,800 tonnes of cobalt by the mid-2020s, Ziswa said.

Glencore’s Mutanda, the world’s largest cobalt mine, was mothballed in late 2019 due to low cobalt prices and market demand. Although Glencore is working on a feasibility study of the mine’s sulphide orebody, Ziswa said that cobalt prices will determine any restart of the mine.

“There are also at least 18,000 tonnes per day of cobalt capacity from artisanal-mined cobalt in the DRC,” he said. “However, artisanal capacity has been on care and maintenance since last year because of concerns over ESG [Environmental, Social, and Governance], with possible restarts determined by cobalt prices and will depend on changes in regulations around ESG and consumer requirements.” 

ESG risks represented by this sector and stricter sourcing requirements from consumers like car manufacturers will likely mean that it will remain idle for some time to come, Ziswa said. In recent years, several responsible sourcing initiatives to improve the artisanal and small-scale mining (ASM) cobalt sector in the DRC have been launched. Since late 2019, a process of nationalization of ASM cobalt mining has begun, with the creation of state-owned L’Enterprise Generale du Cobalt, which has been given monopoly powers to purchase and market cobalt from the ASM sector.

“While the move towards a more regulated and state-controlled ASM cobalt sector could be essential to build up a more sustainable supply chain, it could also potentially impact the production output from this sector, with around 10,000 tonnes of the total global cobalt output in 2030 expected to come from ASM operations in the DRC,” Ziswa said.

He noted that ASM is a “fairweather” activity, with production from these operations dependent on strong cobalt metal prices.

Ziswa said that although cobalt prices briefly rebounded after Glencore mothballed Mutanda in 2019, prices fell to a 10-month low of US$12.90 per lb. in mid-2020. But rising demand and the tightening in both feedstock and refined markets between 2021-2022 should support a strong recovery in prices.

“Several new mine and refined projects are forecast to come online during this period, which may tip the market into surplus once more and lead to a weaker price environment in 2023 and 2024, with cobalt prices forecast to be around US$19.70 per pound.”

The continuing absence of production from Mutanda could lead to a supply deficit emerging starting in the mid-2020s. This could require a restart of Mutanda and the commissioning of new projects to keep the market in balance and might bring about a spike in the cobalt price to US$22 per lb., from the current US$21 per lb., which he said could incentivize new supply. 

A restart of Mutanda could “largely ease the supply tightness in cobalt feedstocks for the following three years,” Ziswa said, resulting in cobalt prices falling below US$20 per lb. from 2026 to 2028.