Summary: Sentiment toward metals used in future car power is starting to improve.
According to Bloomberg News, sentiment toward metals used in future car power is starting to improve.
A supply glut followed by the pandemic destroyed the short-term outlook for minerals used in rechargeable batteries. But new commitments to green transport by the Chinese and European governments, along with cutbacks in mining and future investment, have led a growing number of people to believe the market is bottoming out.
Chris Berry, president of industry consultancy House Mountain Partners, said that as battery technology prices continue to fall, "once we get through the current difficulties, there is reason to be optimistic in the coming years." In a telephone interview, Berry said, "The European Union in particular is essentially rebuilding the automotive supply chain around battery metals and encouraging the adoption of electric vehicles. China has also re-established its subsidy system for electric vehicles." Optimism about the future of electric vehicles led to oversupply of metals such as lithium and cobalt, pushing prices down by more than half from their 2018 peaks. Just as market optimism was returning, the pandemic triggered a slowdown in demand, clouding the recovery prospects for these metals and nickel.
Although short-term forecasts have been revised downward, the longer-term outlook remains impressive. Bloomberg expects global electric vehicle sales to return to growth in the coming years, rising from 2 million units last year to 8.5 million by 2025, and climbing to about 26 million by 2030.
According to a United Nations report, the global cathode market for lithium-ion batteries, the most common battery type in electric vehicles, is expected to grow from $7 billion in 2018 to $58.8 billion by 2024.
These prospects have led the world's largest lithium producer to expect a turnaround in the market by 2022.
Albemarle Corp.'s new chief executive officer, Kent Masters, said in an interview that demand is "starting to pick up" and that spot prices are now near the bottom. "It will accelerate and absorb the excess supply. In time, there will be a shortage and prices will change dramatically," he said. Andrew Bowering, director of exploration company American Lithium Corp., said only a handful of producers are making money at these levels. "You're starting to see lithium production decline; it's a complete contraction in lithium output. New projects that were planned have not started, and within a few years there will be a tight supply of lithium." Citigroup analysts now expect battery-grade lithium prices to rise about 42% from current levels by 2022, citing "growing confidence" in electric vehicle demand due to new incentives in China and Europe, as well as accelerated supply rationalization.
Due to the pandemic, cobalt is also facing similar supply constraints in the Democratic Republic of Congo, its main producer, in addition to the shutdown of Glencore Plc's Mutanda copper-cobalt mine late last year. According to Darton Commodities, Mutanda accounted for one-fifth of global cobalt production in 2018.
Given cobalt's concentration in the Democratic Republic of Congo, its future as a key material for electric vehicles is also uncertain. BMO Capital Markets analyst Colin Hamilton said Tesla Inc.'s approval of cobalt-free batteries for some lower-end models, a long-awaited move, shows automakers now have more options.
In the battery-grade nickel market, BloombergNEF analyst Allan Ray Restauro expects a tight supply-demand balance in the nickel market over the next two to three years as demand for lithium-ion batteries increases. He said a serious supply gap could emerge as early as 2023, when nickel prices begin to recover.
Government stimulus has cushioned the pandemic's impact on demand. Although the collapse in oil prices has hit the fledgling electric vehicle industry, China is stepping up support measures to promote electric vehicles. Germany's 130 billion euro ($146 billion) recovery budget includes about 41 billion euros for public transport, electric vehicles and renewable energy. France has announced an 8 billion euro auto industry stimulus package focused on the domestic electric vehicle supply chain.
Andrew Miller, product director at industry consultancy Benchmark Mineral Intelligence, said in an email: "The outlook for battery demand is not as bad as some expected at the height of the global pandemic. There are signs that stimulus measures will focus on the transition to clean energy and electrification in many parts of the world, which will strengthen the medium- and long-term demand outlook." To be sure, no one knows how quickly the world will emerge from the Covid-19 pandemic. In addition, Masters, who took over as Albemarle's CEO in April, said that even with government stimulus, it is hard to predict whether consumers will buy electric vehicles now.
But he said one thing is far more certain and reassuring: "As electric vehicle sales recover, the lithium industry will recover."