Battery, EV producers grapple with record-high prices due to ongoing raw-material supply crunch

Battery producers will have to grapple with historically high prices across different chemistries with most raw material prices facing a deepening supply crunch, potentially making decarbonization of the transportation sector more expensive in the longer term

Battery raw materials such as cobalt and nickel were already facing tight supply this year. Russia’s invasion of Ukraine in late February has pushed both battery metals’ prices even higher, and sanctions on Russia’s finances, along with market participants’ apprehension about handling Russian-origin material, have further limited supply.

Nickel prices hit a high of $101,365 per tonne on Tuesday, an increase of 111% during that day’s Asian trading hours, which prompted the London Metal Exchange to suspend trading. The exchange said Tuesday it will not announce a trading resumption date for nickel any earlier than Friday.

On the physical nickel spot market in Europe, Fastmarkets’ assessment of the nickel briquette premium, in-whs Rotterdam jumped to $700-1,400 per tonne on Tuesday from $240-300 per tonne the previous week.

The boom in the nickel price also prompted cobalt prices to push higher on Tuesday, sparking further demand for the minor metal from market participants looking to replace nickel in applications such as plating, as well as from others looking to stockpile supply to hedge against further upside swings.

Cobalt standard grade, in-whs Rotterdam was assessed at $37.35-38.40 per lb Wednesday, up from $36.75-37.75 per lb the previous day. Cobalt alloy grade, in-whs Rotterdam was assessed at the same level as well.

Cobalt metal prices have increased by 12% since the beginning of the year, after more than doubling during 2021.

Consumers have tied a large share of their 2022 consumption to long-term contracts after the uptrends seen last year. While this limits their exposure to the current spot price rally, some buyers are also seeking additional volumes in advance to avoid new supply disruptions down the line. This, in turn, is fueling concerns about potential supply tightness and contributing to the spot price volatility.

Battery knock-on effects

The steep jump in prices is expected to cause further concerns for nickel, manganese and cobalt (NMC) battery producers who are exposed to the upswing through long-term contracts if the uptrend continues.

“Having such a high nickel price is not good for the battery sector,” one cobalt trader in Europe said.

“This situation doesn’t help anyone. Moments like these destroy markets. There will be knock-on effects for all end-use markets for nickel, including batteries,” a battery raw material producer said.

Those knock-on effects could lead to battery producers passing down costs to end consumers.

Electric vehicle producers have already been passing along higher battery production costs to consumers throughout the year.

Participants also warned that the supply and price issues affecting raw materials for NMC battery chemistries may specifically affect Western and non-Asian EV markets, because that is where local automakers have historically oriented their battery strategies toward NMC.

“If anything, [the rise in nickel and cobalt prices] will dramatically increase the ultimate sell cost. The battery pack will see price increases, and we’re already seeing that,” a second cobalt trader said.

Electric vehicle producer Tesla was reported to have increased its prices for its long-range Model 3 and Model Y cars in the US by $1,000 on Wednesday, coinciding with the rise in nickel and cobalt prices. Both of those models utilize nickel and cobalt battery chemistries.

With nickel and cobalt rising rapidly, battery producers could look to cheaper chemistry alternatives if the high price levels are sustained over the long term. The price gap between NMC and alternative chemistries, however, is narrowing.

No cheap alternatives

The main alternative to NMC battery chemistry is lithium iron phosphate (LFP), which utilizes lithium carbonate as a key ingredient. Lithium carbonate prices have been on a sustained uptrend since 2021, with supply struggling to keep up with electrification demand in all major markets.

In China, which is the single largest EV market globally, LFP remains the chemistry of choice for local EV producers. And the LFP market share there increased during 2021.

The demand uptrend for LFP in Asia has been instrumental driving the price progression of lithium carbonate (used in LFP), which since late last year, has been trading at a premium against higher-processed, and historically more expensive, lithium hydroxide.

“Until a few months ago, you had the option to shift from NMC to LFP,” a third cobalt trader in Europe said, but “it doesn’t make sense to switch [now]; battery producers are facing a weird situation where both ways are super expensive.”

Fastmarkets assessed lithium carbonate 99.5% Li2CO3 min, battery grade, spot prices cif China, Japan & Korea at $70-73 per kg Tuesday, up more than 597% compared with the same time last year.

“Interesting that nobody asks the question on LFP with [lithium] up 1,000% over the past year,” a battery producer said.

“The [production] cost of LFP over NMC is quickly narrowing,” the second trader said. “Now with what’s happening with nickel and cobalt, inevitably it’s going to have an effect [on battery producers]. Whether that effect is limited to a cost increase or whether that in turn will result in demand destruction, is difficult to determine.”

It could also lead to end-consumer prices soaring to a point that destroys demand from the automotive sector further downstream. And that raises concerns that this would slow down the electrification of the consumer transport sector, further hindering governments’ decarbonization efforts.

“We believe prices will continue to increase in the next months, given the strong demand and lack of new supply,” a Morgan Stanley memo published on Wednesday said, referring to lithium prices. “Yet, we continue to think those price levels are not sustainable and untied from cost curves, and the high prices are already resulting in some demand destruction in the auto market.”

Short- and long-term chemistry commitments

Committing to a potentially more economical battery chemistry, this early in a price surge that might not last, is also a risk.

For now, some battery producers are trying to keep their chemistries diverse to minimize over-exposure to any given metal due to the uncertainty on price direction.

“I still firmly believe that a mix of chemistries will be in the market, simply to not be dependent on any metal,” the battery producer said.

For some, nickel’s extreme rise could be a temporary blip, while lithium has more potential to continue moving higher.

“It’s early days. The run up in nickel is likely to be a spike,” William Adams, Fastmarkets’ head of battery metals research said. “Who would buy at $80,000, $70,000, $60,000, $50,000 [per tonne] when it was trading at a ‘fair’ – established by open outcry – price between $24,000 and $29,000 last week?”

Adams added that he expects the LME nickel price will fall back down to $20,000-30,000 [per tonne] later in the year.

Lithium, unlike nickel, could have further room for a sustained uptrend on the back of bullish underlying fundamentals.

“Given that it takes five to ten years to build a new lithium operation but one to two years to build a new manufacturing plant, and EVs are expected to have a compound annual growth of 20-plus percent, producers are going to really struggle to bring enough material on board – unless demand slows,” Adams said.

According to Fastmarkets research forecasts, the lithium market is facing a growing deficit through 2023, with a deficit of 60,000 tonnes of lithium carbonate equivalent (LCE) in 2022 and a deficit of 89,000 tonnes of LCE in 2023.

Whether EV demand will continue to sustain its growth despite potentially higher prices throughout the supply chain, and whether that can then help global decarbonization efforts progress, remains to be seen.

While battery raw material costs have continued to climb, carbon-based energy has also hit record highs in recent days, some market participants pointed out.

Electrical vehicle (EV) demand could increase with US sanctions on Russian oil pushing crude oil prices to historic highs, some participants said. Brent crude oil traded at $131.64 per barrel Wednesday, its highest since 2008.

“With rising fuel prices and gasoline going through the roof, how good would that be for the EV market?” the second trader said.

Callum Perry in London contributed to this story

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