Deglobalization of lithium-ion supply chain ‘key’ for a new generation of energy markets

Western economies have increasingly been moving to deglobalize the lithium-ion battery supply chain to reduce over-reliance on certain countries and to improve the sustainability of the industry

Supplies of lithium, alongside other key battery raw materials such as cobalt and nickel, have been tight in recent years, with suppliers struggling to keep up with the surge in demand while the world pushes for electrification. The industry sources agreed that this was the main reason behind the uptrend seen in prices globally.

During LME Week – hosted by the London Metal Exchange in London, October 24-28 – lithium was identified as one of the most challenging battery raw materials to procure, posing problems for the US and the EU while they seek to become global powerhouses in the battery electric vehicle (BEV) and gigafactory sectors.

Most market participants expect the lithium market to remain tight over the coming decade, especially with new supply coming online from Western origins more slowly than expected due to strict regulations on battery raw materials (BRM) projects.

At the same time, Western nations are scrambling to secure increased supplies for the coming decades to help them to meet their ambitious decarbonization goals.

As a result of the tight supply and increasingly stringent sustainability requirements, circularity of sourcing was another key discussion point for the market at recent industry events, particularly in respect of those materials in which Europe and the US are resource-poor, such as lithium.

This was driving Western markets to turn to recycled lithium-nickel-manganese-cobalt oxides (NCM) and lithium iron phosphate (LFP) batteries in their attempts to achieve their carbon emissions goals in the coming decades, according to delegates at such events.

“Given the tight supply [of battery raw materials] and the lack of raw materials in some regions, plus the cost-effectiveness of using secondary supply, we expect that recycling is going to grow as fast as scrap availability allows,” Fastmarkets’ head of BRM research, Will Adams, said during a Fastmarkets webinar on Tuesday November 15.

“It will help to reduce exposure to long supply chains and reduce exposure to other countries’ national resource issues,” he added.

“Due to the strategic importance of secondary-source battery raw materials, we expect governments to restrict exports of scrap to ensure that BRMs are kept within [their own] countries,” he said.

In Europe, the existing regulatory approach toward the mining and processing of BRMs is one of the key factors preventing the region from bringing on new localized supplies, and attracting further investment to spur production, market sources said during Fastmarkets’ European Battery Raw Materials conference in Barcelona on September 20-21.

In light of that, European Commission President Ursula von der Leyen recently announced the introduction of the European Critical Raw Materials Act to encourage initiatives to secure the raw materials needed for energy transition. But the regulations on mining and processing the materials in Europe remained strict, sources in the sector said.

In fact, several lithium projects have already run into high-profile challenges linked to regulatory issues. Savannah Resources’ Barosso lithium mine in Portugal has faced political and bureaucratic delays, as well as opposition from local community groups, this year.

And in January, the Serbian government revoked Rio Tinto’s exploration license for its Jadar mine after months of protests from local communities and environmentalists.

The restrictive regulatory environment also makes it less attractive for investors to allocate capital due to the uncertainty of when, or if, a project will be able to legally produce material.

US battery raw material supply faces similar challenges due to rigid regulatory frameworks, sources said recently.

But the country recently approved the Inflation Reduction Act (IRA), intended to increase US competitiveness in the BRM supply chain by increasing output of critical minerals in hopes of easing its reliance on China.

The IRA offers a tax credit for the purchase of electric vehicles (EVs) in which at least 80% of the lithium, cobalt, nickel and manganese used in their construction has been extracted and processed in the US, or in a country with which it has a free trade agreement.

Lithium prices at record highs

Tight global supplies have seen lithium prices on an uptrend in recent years following the downcycle seen in 2020.

Fastmarkets’ most recent assessment of the lithium hydroxide monohydrate LiOH.H2O 56.5% LiOH min, battery grade, spot price, cif China, Japan & Korea, was $83-86 per kg on November 17. This price was up by 156% from $32-34 per kg at the beginning of 2022.

Market participants generally agree that the structural deficit in supply, and the rapid growth in demand that have supported the jump in prices so far this year, are likely to remain in place in the coming years while the market for electric vehicles (EVs) expands.

“A less important and probably overlooked aspect is the effect on post-industrial societies, through the return of well-paid manufacturing jobs,” Fastmarkets BRM research analyst Jordan Roberts said.

“In the West, we have shifted from a manufacturing society to a service society to the detriment of working-class and lower middle-class households, [replacing] well-paid manufacturing jobs with poorly paid retail jobs,” he added.

“Yes, it’s cheaper to make things abroad,” he said, “but there is an argument that the return of industry and manufacturing jobs to the West will increase wages, improve the standard of living for many, and increase their buying power - thus increasing the country’s overall gross domestic product.”

Find out more about the role of battery recycling in the energy transition

Recycling will play a key role in the growth and success of the energy transition, but will limited material hold back the industry? In Fastmarkets’ latest battery raw materials risk matrix report, we discuss how a lack of recycling material could impact the EV market and provide forecasts for available recycling scrap to 2032.

You can read the full report here, which also includes insights into the other factors at play in the risky road ahead for the EV market.

Visit our dedicated battery materials page to discover more insights on the factors at play in the industry in 2022 and beyond.

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