Are Battery Metals Losing Their Spark?

Quick to contest this take was the London-based Benchmark Mineral Intelligence which outlined its reasons for expecting lithium prices to remain strong. Across the pond, the US analyst Wood Mackenzie opined that the battery raw material chain would remain tight while adding that battery recycling could potentially ease the supply deficit.

Around the end of May 2022, the multinational investment bank Goldman Sachs sent battery metal stocks in a tizzy by forecasting that the price of three key battery chemicals – cobalt, lithium, and nickel – would drop over the next two years. The reasoning behind the claim was that investors had piled in too quickly. In its report, the bank had highlighted that even though the electrification of the transportation sector had caused severe battery metals supply issues last year, including shortages in the lithium-ion battery market, it expected the critical metals bull market to be “over for now.”

Currently pegged at just under $54,000/ton, Goldman expects lithium prices to drop drastically to $16,372/ton in 2023. Similarly, cobalt prices are expected to fall to an average of $59,500/ton next year from their current average of around $78,500/ton. As for nickel, prices were expected to remain relatively steady from their current rate of $31,000/ton to $30,250/ton next year. It is important to note that Goldman expects a rally in nickel prices to $36,500/ton over the rest of 2022 after which they are expected to decline.

Analysts project that the production of critical metals will increase steadily in the years to come. Between 2022 and 2025, it is anticipated that lithium supply will grow by 33% annually thanks in part to new projects in Australia, China, and Chile. Cobalt supply is forecasted to rise by 14% year on year and nickel by 8% year on year in comparison to the annual demand growth rates of 27%, 11%, and 7% respectively for these battery chemicals.

A Different Take

Many industry observers, including the London-based consultants Benchmark Mineral Intelligence, did not agree with Goldman Sachs’ assessment. The analysts claimed that battery metals supply issues were here to stay for the foreseeable future as they did not expect new production to be able to counter supply deficits.

Indeed, Benchmark is strongly of the opinion that the lithium market is likely to remain in structural shortage until 2025. The consultancy highlighted five factors to counter Goldman’s claims:

a) The quality of China’s hard rock and brine resources left much to be desired which meant that the industry could not rely on the country’s feedstock to meet market demand.

b) “Capacity” does not necessarily translate into “supply” – building resources can take time and often doesn’t go according to plan. For instance, Tianqi Lithium’s Kwinana refinery in Western Australia is expected to take nearly a decade to go from announcement to full production (targeted for 2025).

c) New lithium supply was likely to come at a higher cost base as deposits with unconventional mineralogy, lower grades, and higher strip ratios would be targeted and newer, often smaller, converters would struggle to keep costs down.

d) There still wasn’t any single homogenous price for lithium across the industry – most of the market was under long-term fixed and variable price contracts which essentially meant that it would take time for spot and contract prices to come into equilibrium.

e) A significant portion of chemical capacity was being deployed to reprocess material that did not meet specifications. These simply represented lower efficiency production as opposed to the introduction of new lithium units into the market.

Battery Recycling: A Potential Solution?

Despite issues in the supply chain of battery chemicals, there is a growing consensus that global cumulative capacity will increase in an unprecedented manner throughout the decade. The American analyst Wood Mackenzie stated that global cumulative lithium-ion battery capacity could skyrocket more than fivefold to 5,500 GWh between 2021 and 2030. WoodMac’s base case scenario works with the assumption that supply would not keep pace with demand until sometime in 2023. A potential method of handling these battery metals supply issues could be to recycle both scrap and end-of-life batteries.

WoodMac outlines that the current demand for key battery chemicals stands at 97 kilotonnes (kt) for lithium, 186 kt for cobalt, and 3,014 kt for nickel. By 2030, these are projected to grow to 318 kt, 264 kt, and 4,273 kt, respectively. In comparison, the analyst highlights that the supply from recycled materials would be to the tune of 130 kt for lithium, 112 kt for cobalt, and 377 kt for nickel by the end of the decade.

In the current scenario, recycling critical metals from batteries is a challenging and perhaps inhibiting proposition. To begin with, recycling the cathode (which is rich in critical metals) is not an easy affair as these are densely over-packaged with pack materials like casings, interconnects, cooling channels, and more. According to WoodMac, the industry push to utilize lower value materials along with the shift towards larger-sized electric vehicle packs also act as deterrents against recycling as the throughput is lower. Finally, electric vehicle packs come with long warranties and lifetimes. Coupled with the emergence of second-use applications (like residential or industrial energy storage), this means that end-of-life electric vehicles are less likely to enter the recycling system.

Given these factors, WoodMac is of the opinion that production scrap is likely to be the preferred source of recycling material this decade. At the global level, analysts believe that battery manufacturing capacity will grow 3.5 times to more than 4,621 GWh by 2030. China is expected to lead the way in this direction. All things considered, production scrap will probably see a burgeoning market. “At the end of the day, the amount of production scrap or EVs coming to end of life will never be able to meet demand while demand continues to increase. There needs to be a push in expanding virgin sourcing while maximizing the recycling sector to ease the deficit,” concluded WoodMac research analyst Max Reid.