2018 REVIEW: 10 things that defined the battery raw materials markets this year

The past 12 months have served as a reality check for the battery raw materials markets.

While 2017 was a year of soaring prices and investor interest, 2018 has seen supply responses, substitution debates, and at times, plummeting prices.

It’s not that the fundamentals aren’t still strong. By 2025, Fastmarkets’ forecast is for plug-in electric vehicle (EV) sales to grow at a compound annual growth rate of 38%, which will mean an EV penetration rate of 16%, with some 17 million EVs being sold annually that year (up from 1.4 million plug-in sales across the United States, China and Europe during the first 10 months of 2018).

But for the time being, supply concerns surrounding cobalt and lithium have eased, while demand for batteries and electric vehicles themselves is expected to intensify from 2020 and beyond.

Sentiment has undeniably changed compared with this time a year ago when, for example, cobalt prices were soaring after investment vehicle Cobalt 27 added more than 700 tonnes of cobalt to its stockpile.

Here, Fastmarkets reporters summarize 10 things that have defined the battery raw materials sector in 2018.

Low-grade cobalt trading at a premium to high-grade metal
Cobalt prices slumped in the second half of the year amid increased availability of Chinese metal, turning sentiment, weaker summer demand, and concerns over mounting hydroxide supplies. But grade premiums and discounts still highlight areas of demand and tightness affecting the battery sector.

High-grade cobalt brands, broadly comprising cut cathodes and rounds qualified for use in the super-alloy sector, have traditionally traded at a premium to the low-grade market, but that changed in 2018. For large chunks of the year, the two grades traded at parity amid tightness of the broken cathodes and briquettes (which broadly comprise the low-grade quote) preferred by the battery sector where their metal purchases are concerned.

There have been, however, some occasions where that tightness has become so acute as to see low-grade trade at a premium to high-grade, particularly when consumers have come into the spot market with tight specifications. That shift happened for the first time in August, when, come the end of the month, low-grade cobalt prices were assessed at $33-33.60 per lb, in-warehouse, compared with $32.55-33.55 per lb for high-grade material.

(From January, Fastmarkets will rename its low-grade and high-grade cobalt price assessments as standard-grade and alloy-grade respectively.)

High cobalt hydroxide payables squeezing sulfate producers’ margins
Chinese cobalt producers’ profit margins have been vulnerable for most of 2018 amid high cobalt hydroxide payables (agreed as a percentage of the Fastmarkets low-grade cobalt price) and falling spot cobalt sulfate prices. The discount for Chinese cobalt sulfate against the low-grade cobalt benchmark (at 20.5% Co basis) has been widening since the second quarter and hit a record high at $2.55-2.83 per lb in November, according to Fastmarkets’ data. In contrast, hydroxide payables for 2018 were agreed at 80% and above, compared with discussions around 60% more recently.

Such a big gap also made Chinese buyers to shift to spot market for cobalt intermediates amid reluctance to commit to long-term contracts. In addition, some Chinese consumers have even backed away from purchase agreements in a weakening market.

Cobalt hydroxide surplus dampening sentiment
Panic stemming from the emerging cobalt hydroxide surplus was one of the main reasons behind falling cobalt prices – especially in the Chinese market – since the second quarter of 2018. The rally in prices since 2017 stimulated aggressive expansion of production, in addition to new production already scheduled to come on stream.

Late last year, Glencore announced the restart of production at Katanga in the Democratic Republic of Congo (DRC), with output expected to reach 34,000 tonnes per year in the 2019 financial year, (though the production guideline was since revised downward by 8,000 tonnes after excessive levels of uranium were detected in the mine). In addition, ERG’s Metalkol Roan Tailings & Reclamation project in the DRC is expected to produce 14,000 tpy in 2019. The cobalt hydroxide surplus is estimated to reach 6,729 tonnes in 2019, according to Fastmarkets’ battery raw material research team.

China’s EV subsidy policy expediting a shift to nickel-rich batteries (in theory)
February revisions to China’s EV subsidy policy raised the threshold of minimum driving range from 100km in 2017 to 150km. It brought forward a shift to nickel-rich batteries which in return reduces the amount of cobalt required in the cathode. As a result, the hesitance to purchase cobalt sulfate from downstream consumers kept cobalt sulfate prices under pressure since the second quarter.

But the bottleneck in technological innovation for a safe nickel-rich battery has led consumers to resume their buying of cobalt sulfate, in addition to the traditional stockpiling needs ahead of the Chinese New Year holiday on February 4-10.

Increasing nickel sulfate output, rising briquette liquidity
Nickel sulfate output in China is estimated at 450,000-500,000 tonnes, and around 700,000 tonnes globally, according to Xu Aidong, chief analyst at Chinese research organization Antaike. This compares with 300,000 tonnes of nickel sulfate produced in China last year, according to market participants. The rise in nickel sulfate output was in response to surging demand from the EV sector and has also resulted in increased liquidity of nickel briquette – a key sulfate-making raw material.

Fastmarkets assessed the China nickel sulfate ex-works price at 23,700-24,200 yuan ($3,438-3,511) per tonne on December 18, which is down from an assessed price of 25,500-27,500 yuan per tonne on July 24, when the price was launched, amid declines in the London Metal Exchange nickel price.

Nickel’s EV boost remaining at large
The electric vehicle boom, that was predicted to boost nickel prices in the coming years is yet to materialize. Nickel prices are down by about 13% on the year, trading at around $11,000 per tonne. The slowdown of the Chinese economy and its bearish effects on stainless steel demand, combined with bearish sentiment from the US-China trade war have kept prices low.

But there are also doubts that class-one nickel supply for battery applications will be as tight as expected, making the prospects of such a boom less likely. A joint venture including Tsingshan Group, GEM and Brunp announced it will undertake a projected $700-million investment to develop a high-pressure acid-leaching project in Indonesia. The project has a target production of 50,000 tpy. It will also be able to produce 50,000 tpy of nickel hydroxide intermediates and 150,000 tpy battery-grade nickel sulfate for batteries.

Increased supply at cheaper costs hitting lithium prices
Slower spot consumption year on year due to the Chinese subsidy policy change, cheaper material produced and sold in China, and a supply surplus have pushed down Chinese spot market prices and fourth quarter contract prices.

The battery-grade lithium carbonate spot price in China has fallen by around 55% year on year to 75,000-83,000 yuan per tonne as of December 20. The Chinese battery grade lithium hydroxide spot price, meanwhile, has experienced similar weakness, falling to 100,000-110,000 yuan per tonne on December 20. This is 28% lower than an assessed price of 145,000-150,000 yuan per tonne a year earlier.

Battery players seeking new ways to price their raw materials, hedge their exposure in volatile markets
Increasing interest in the battery and EV sectors meant focus on previously niche parts of the nickel supply chain, meaning new reference prices for nickel sulfate and briquette. Metal price references have traditionally been a proxy for the strength of the entire cobalt supply chain, but now price discovery for cobalt sulfate provides a sound indication of the strength of the battery raw material itself.

At the same time, price volatility in cobalt and lithium left the market seeking a new way to hedge their exposure: the LME for one has been vocal about its intention to launch a cash-settled futures contract as a better reflection of how the physical cobalt market trades. It has also launched a market consultation into the best way to provide a hedging tool for the lithium industry.

Rising demand from battery sector underpinning China’s graphite price
China’s spherical graphite spot price has maintained an upward trend in 2018, up by around 15% from $2,250-2,700 per tonne fob China at the start of this year to the current $2,800-2,900 per tonne, underpinned by fewer spot cargoes and strong demand from anode producers in response to the rapid growth in battery end-markets.

Prices for flake graphite, the raw material for spherical graphite, have basically been stable through 2018, only moving down slightly during August to November on sufficient supply due to increasing imports of material entering China. But prices rebounded to near their previous levels in December on a reduction in supply during the country’s winter months and increased stockpiling by downstream consumers in the run-up to the end of the year.

Fastmarkets assessed the price of flake graphite 94-97% C, -100 mesh, at $650-790 per tonne on December 20, up from the $630-790 per tonne reached on October 25 and returning to almost to the range held throughout most of 2018.

And VRB adoption looking further out of sight following vanadium’s stellar year
Vanadium redox batteries (VRB), which can be used to store energy generated from renewable sources, are complementary to the global sustainable energy drive, but their mass market viability looks further out of sight following major increases in vanadium prices this year.

Vanadium pentoxide flake (V2O5) prices hit all-time highs of $28.50-29.15 per lb, in-warehouse Rotterdam, in November, up from $9.90-10.20 per lb at the start of the year, according to Fastmarkets’ assessment.

Price increases of such a scale come down to tight supplies of vanadium and good demand from the rebar sector, but in the process, inhibit the development required to bring vanadium flow batteries to the mainstream market.

What will drive prices in 2019? Join our webinar on 15 January to find out, as the team discuss recent and upcoming trends and how we price the minor metals markets. Register here.