Battery materials market set to be finely balanced in 2023
Fastmarkets looks ahead to 2023 and beyond at some key predictions for the battery materials market as the world continues to strive towards a new generation of energy markets
The electric vehicle (EV) market and demand for battery materials went from strength to strength throughout 2022 despite global challenges across the markets with the war in Ukraine and Covid-19 disruptions. But what does the year ahead have in store?
- Lithium market remains quiet with supply potentially outpacing demand
- Cobalt supply remains ample and new projects will tackle ESG concerns
- Nickel sulfate remains on a pricing downtrend
- Graphite prices under pressure as EV sales slow
- Battery recycling in the spotlight for year ahead
Lithium prices remain under pressure
Lithium prices remained under pressure as 2023 got underway, with the various battery grade price series across the regions down between 0.6% and 4.7%. The market is quiet and battery producers are operating at low utilization rates and activity in January is expected to slow as China focuses on the Lunar New year holiday. Seaborne prices have also started to follow the Chinese market lower. Demand from downstream consumers has continued to weigh on the market. The whole industry has been cutting production since late November 2022, which is expected to last into late January 2023. Fastmarkets has learned that several large battery producers will be operating at 30-50% of capacity in the weeks ahead. Chinese domestic prices have also continued to fall over the holiday period and into the first week of the new year. European spot prices have tracked the global bearish sentiment stemming from China, with spodumene prices also down on weaker lithium prices.
Supply may outpace demand growth in 2023
Whilst sentiment in China remains low and there is expectation that supply expansions may outpace demand growth this year, producers elsewhere do not seem too concerned with the current price fall. Fastmarkets understands that their order books are still full and they continue to feel the pull from customers. They also believe that there is more chance of upside surprises on price this year as new supply is still showing difficulties getting to market on schedule. The period before the Lunar New Year is typically mixed and a stronger price signal is expected to appear post celebrations, giving a more reflective assessment of the market. Overall, we are confident that the market will be less tight this year.
Fastmarkets had previously forecast a small surplus in supply in 2023, but this has now moved to a deficit because of increased EV battery demand and some expected disruptions to supply. It is also expected that in response to the introduction of the IRA, our forecast for US BEV sales has been upgraded by 80% in 2023 and 107% in 2024 on previous forecasts. It is also forecast that mine supply will increase by 35% year-on-year to 984,000 tonnes, mostly fuelled by Australia (+104,000 tonnes LCE y-o-y) and China (+62,000 tonnes LCE y-o-y). As a result of continued expansion to Chinese processing capacity, smaller expansions in Chile and Argentina, as well as the continued ramp up of Kemerton and Kwinana plants in Australia, processed supply is expected to increase by 37% year-on-year to 886,000 tonnes in 2023.
Fastmarkets has forecast total adjusted supply to increase by 184,000 tonnes LCE year-on-year to 849,000 tonnes LCE in 2023 and apparent demand to increase by 181 tonnes to 864 tonnes LCE, resulting in a deficit of approximately 14,000 tonnes LCE. However, there is a lot of uncertainty surrounding demand in 2023, as global inflationary pressures and increasing interest rates are expected to curb customer spending. We also wait to see the fallout of Chinese subsidies ending and the introduction of tax regimes in European markets.
Cobalt supply remains healthy but market bearish
Heading into 2023, sentiment in the global cobalt market is bearish with ample supply and buyers are not rushing to restock. Fastmarkets revised supply/demand balance for last year saw the market with a smaller surplus than previously expected. Despite the weakening demand at the end of 2022, reduced supply out of the Democratic Republic of Congo (DRC) meant that the market was not as long as previously forecast. Sales and production figures from Chinese processors also pointed to precursor active battery materials (PCAM) producers slowing operating rates in line with poor buying activity.
EV demand likely to be resistant to economic slowdown
The first half of 2023 is likely to have similar characteristics to the second half of 2022, with plenty of material on offer and buyers continuing to wait for improving downstream appetite. Demand remains weak in key downstream sectors. It will be intriguing to see what impact the ending of subsidies in China has on EV and cobalt demand in the first half of 2023. For now, Fastmarkets’ view is that EV demand is likely to be more resistant to the economic slowdown compared to other sectors such as consumer electronics, which lagged in the final quarter of 2022. Currently, supply is ample, with buyers having access to readily available material.
China import tariff removal unlikely to have effect on cobalt metal trading volumes
China has made the decision to remove its import tariff on cobalt metal from 1 January 2023. The tariff was previously lowered in late 2021 from 4% to 2%. Despite this move, the feeling in the market is that it will not have a major impact on volumes traded due to the weak demand being seen. Buyers are said to be securing material on a ‘hand-to-mouth’ basis. With global demand for cobalt weak in some major end sectors this could lead to international prices falling further and reducing this premium but for now the quiet market in China suggests it will remain a symbolic move.
New cobalt projects will tackle ESG concerns
Nico Resources published the results of its Prefeasibility Study (PFS) for its flagship Wingellina Nickel-Cobalt project in Western Australia in the last week of December 2022. Once operational, the ‘world-class’ project is expected produce sustainable green nickel and cobalt for the EV and energy storage industries for a minimum of 42 years. Nico reports Wingellina will be a multi-generational project with the potential to be one of Australia’s largest nickel-cobalt mines with a production of about 40,000 tonnes per year of contained nickel and 3,000 tonnes per year of contained cobalt based on current ore reserves.
These are encouraging signs for the Australian nickel and cobalt industry, which is marketing itself as being able to mine and process essential minerals with higher ESG standards and a lower carbon intensity. These issues continue to be a challenge for the traditional cobalt base in the DRC and the developing Indonesian industry.
Nickel market facing macroeconomic headwinds
The LME three-month nickel price declined at the beginning of 2023, closing at US$27,650 per tonne on January 6, down by 9.4%. The nickel market is facing macroeconomic headwinds and is estimated to be in surplus according to the International Nickel Study Group (INSG), which estimates a cumulative market surplus of 78,300 tonnes to October 2022. Fastmarkets estimates an 89,100 tonnes market surplus for 2022 as a whole.
LME stocks remain at historically low levels, standing at 54,822 tonnes on January 6, down slightly from 55,476 tonnes on 30 December. SHFE stocks are also close to historical lows, but edged higher, reaching 2,930 tonnes on January 6, up from 2,496 tonnes on 30 December. The Chinese nickel sulfate price was assessed at 36,000-37,000 yuan per tonne, down from 37,000-38,000 yuan per tonne, a decline of 2 .7%.
The nickel sulfate price has been on a downtrend since reaching a high of 41,000-41,500 yuan per tonne in late November. Fastmarkets assessed the nickel mixed hydroxide precipitate (MHP) payable indicator, % London Metal Exchange, cif China, Japan and South Korea at 72% of the LME nickel price, unchanged from the previous week. Nevertheless, this is below the highs of 80-83% reached in November.
Fastmarkets forecasts the nickel market to register a wider surplus of 236,800 tonnes in 2023 and 204,200 tonnes in 2024. We forecast the price to average US$29,200/tonne in 2023, and US$30,000/tonne in 2024.
Graphite prices recede under pressure of weakening demand
Graphite prices got off to a slow start to 2023, with prices receding under the pressure of weakening demand, despite seasonally reduced graphite output. In China, while flake graphite prices are maintaining stability on lower supply in line with seasonal production outages, spherical graphite prices are declining in response to reduced demand from the EV battery sector.
In Europe, graphite flake prices are slipping reflecting not only slower demand from traditional sectors, primarily the steel industry, but also reduced freight rates. Graphite flake 94% C, -100 mesh, fob China is unchanged at $830 per tonne, while Fastmarkets’ assessment of graphite spherical 99 .95% C, 15 microns, fob China fell to $2,500-2,800 per tonne, down from $2,800-3,000 per tonne previously. European large and fine flake prices are slipping, with Fastmarkets’ assessment of graphite flake 94% C, -100 mesh, cif Europe declining to $775 per tonne from $800 per tonne previously.
Graphite prices will remain ‘vulnerable’ as EV sales slow
We expect graphite prices to remain vulnerable in the near term and trend stable to lower through January. In China, we expect to see prices for battery precursor material remain subdued reflecting slower EV demand in response to both changes to Chinese government subsidiaries for the EV industry, which are expected to increase EV prices for Chinese consumers, and the upcoming Lunar New Year holiday period.
Declining freight rates and subdued demand from traditional consumers will also cap near-term European graphite prices. We may see a revival in graphite prices in China in the post-holiday period as activity resumes, but given expectations of slower EV sales, a price revival during the first quarter of 2023 is not guaranteed.
Battery recycling hot topic with India ‘one to watch’
Battery recycling continues to be a topic on everyone’s lips as we move into 2023. Redwood have announced that it would spend at least $3 .5 billion on another campus in South Carolina, in a region of the country that is fast becoming a hub for battery and electric vehicle production.
The US DOE has also put $74M toward ten EV battery recycling projects. Projects funded by the announcement will lead to second-use scale-up demonstrations that integrate end-of-life EV batteries into secondary applications. This includes stationary energy storage systems and projects that focus on advanced materials separation, scale-up, and reintegration of lithium-ion battery materials. Electra have started their Ontario black mass refining plant and are aiming to begin their 5t per year commercial operation by the end of Q1 2023.
The industry estimates suggest that India will have over 145,000 tonnes of discarded Li-ion batteries by the end of 2030 creating a US $1 bn+ worth opportunity for battery recycling. Lohum is leading the way in battery recycling in India doing end to end recycling and 2nd life. Other companies in the Indian market include Attero who recycle EV batteries into metals, Gravita who recycle lead acid batteries, e-Bike Go who recycle their own EV manufacturing waste and Tata Chemicals who are planning to start recycling batteries.