Evolving battery technology will alter demand for raw materials

Ahead of the S&P Global Platts Global Metals Awards in London, on May 16, The Barrel presents a special series of articles looking at the global metals trade. Emmanuel Latham and Felix Maire take a look at how changing battery chemistries will affect markets for metals like cobalt, nickel and lithium.

As the automotive sector hits difficult times, electric vehicles are proving to be one area in which horizons seem bright.

Global light duty plug-in electric vehicles were up 43% year on year in February as depicted in the latest Platts Analytics EV Essentials data, and several carmakers are increasing their commitment to the electrification of passenger vehicles.

As these commitments grow, the raw materials that underpin the EV industry are subject to greater scrutiny. Lithium, cobalt and nickel are all key components of the current cathode technology, NMC. Both lithium and cobalt have seen the landscape of their markets rewritten by the newfound demand, while nickel, the only one of the new ”battery metals” whose major demand base is not batteries, looks set to experience some supply shortages going forward.

Consumer demand and favorable Chinese subsidies have seen the battery industry pushing towards increased ranges in recent years, while cobalt's price movements over 2018 and unreliable supply origins have seen moves to reduce cobalt content in cathodes.

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Fortunately thanks to advances in NMC technology, increasing range and reducing reliance on cobalt go hand in hand for battery makers. The dependence of the global cobalt supply on the Democratic Republic of Congo, has encouraged battery makers to look into alternative technologies that limit their exposure to the metal. The unpredictability of doing business in the DRC has caused difficulties for the battery industry. For instance in December 2018 the country classed cobalt as a "strategic" substance, nearly tripled royalty payments, ramping up costs for producers based there.

The DRC’s artisanal mining industry is also a factor behind battery makers and EV manufacturers’ attempts to reduce cobalt consumption. According to Amnesty International some artisanal operations in the DRC have children working in hand-dug mines and facing serious health risks as a result. Given this situation, it comes as little surprise that international companies would like to limit cobalt use, although it is worth noting that according to one major producer, the lower prices of cobalt hydroxide in 2019 have heavily disincentivized, and thus reduced, artisanal activity so far.

Higher nickel, lower cobalt batteries such as the NMC 811 are widely considered the future, using three times less cobalt than the existing NMC 111. Despite expectations that the cobalt quantity per battery will fall, overall cobalt demand (from passenger vehicles) is expected grow, according to S&P Global Platts Analytics.

Go deeper: S&P Global Platts Analytics Scenario Planning service and EV Essentials data

While it only forms a small portion of present nickel demand, growth from the battery sector is expected to outstrip that of other demand bases. As NMC cathode technology moves towards higher nickel content, demand per battery is set to grow. Compounded with anticipated increases in stainless steel and alloy industries and the lack of fresh nickel supply coming online, this has led to widespread expectations of a supply crunch.

HPAL production from Indonesia could well prove the answer. Tingshan Group announced in 2018 plans to build a high pressure acid leaching plant (for nickel extraction from laterite ore) in Indonesia by 2020. Other HPAL projects in the country could also be on the horizon. Also feeling the impact of the push towards higher nickel NMC cathodes is the lithium industry. Earlier cathode technologies used lithium carbonate, but for NMCs with over 60% nickel content, lithium hydroxide is proving essential. Synthesizing higher-nickel content cathodes with lithium carbonate requires high temperatures, which damage the crystal structure of the cathode. With hydroxide, the synthesis can occur rapidly at lower temperatures, maintaining battery performance.

Despite the increased demand and attention, hydroxide prices have trended down over the year, narrowing the spread to carbonate, and some market expectation was seen that the spread could narrow to merely the cost of conversion between the two products, but this is yet to be seen. Major producers are targeting hydroxide expansions through 2019, with Albemarle leading the charge, by commissioning an additional 20,000 mt of capacity to their Xinyu hydroxide plant in China.

Carbonate remains the most heavily traded product, but with increased production and inquiries, hydroxide is gaining ground. However, changes to Chinese subsidies for electric vehicles, announced March 26 could change market direction. The new measures have slashed the subsidy for vehicles with ranges over 400 km by half, and increasing the range required for any subsidy to be paid at all, prompting worries that cathode technology progression could stall.

Despite being widely anticipated by the market, some lithium hydroxide producers fear that the subsidy cuts could hinder demand, with murmurings that some projects have been postponed on the announcement. The announcements have also created some anticipation that cheaper but more rudimentary cathodes, such as Lithium Manganese Oxide and Lithium Iron Phosphate might see increased production, which would improve demand for industrial grade lithium carbonate.

Nevertheless, in the longer term, as the market becomes more consumer-driven, increases in EV ranges look inevitable, and with them hydroxide demand growth: as one precursor producer put it, when making cathodes, “Hydroxide is always better”.