Landmark US bill a boon but may mean higher global metal market prices

The Inflation Reduction Act in the United States may ironically cause global metal market prices to rise for some metals used in electric vehicles (EVs), Fastmarkets sources said

The US may pay more for nickel and cobalt, for example, while other countries reap economic benefits from producing them.

Metal market participants shared some unintended consequences of the Democrat party legislation, which is expected to pass the Democrat-controlled House of Congress this Friday, August 12.

The broad-based but EV-friendly Act has been hailed as “transformative” in the general media. The first major US legislation in decades to address climate change, it makes the largest financial commitment yet to that: $369 billion from the $700-billion package.

Metal industry participants largely welcome the legislation, with some reservations.

A lack of US-origin battery materials for EVs to qualify for enhanced consumer subsidies to purchase battery vehicles, as well as spiraling car financing costs, will work against EV adoption, sources said.

Some question initial claims that the new legislation would make EVs as affordable as conventional cars in the US and spur the country’s low adoption rate, which is around 5%.

However, Fastmarkets has detailed the difficulty for the US of domestically sourcing EV metals in the short time-frame envisioned by the Act, and for consumers to get the full $7,500 tax credit when buying a new EV.

China is the dominant supplier of 21 of 50 minerals recognized by the US as critical, including for EVs.

Where will all the battery materials come from and will there be enough power to charge the grids?
Ed Meir, senior commodity independent consultant with ED&F Man Capital Markets

“The incentive to buy more cars is the least of our problems,” senior commodity independent consultant with ED&F Man Capital Markets Ed Meir said. “Where will all the battery materials come from and will there be enough power to charge the grids?”

US act may boost overseas metal production, global demand and prices

For that reason, one global seller of key battery metals nickel and cobalt said he expected little immediate change within those US metal markets, but there would be an increase in global demand — and prices — arising from greater US EV adoption.

“There’s little to no demand in the States for nickel in EVs; there is almost no precursor production there [for example, of nickel sulphate, or even nickel briquettes often used to produce it],” the seller said.

“It’s the same with cobalt,” he said. He anticipates “a boost worldwide from more US EV sales — but currently not for the USA — just higher prices.”

“The market will be $35 per lb in two to three months — today it should be $30 [per lb],” he added.

Fastmarkets’ daily price assessment for cobalt standard grade, in-whs Rotterdam was $23.60-25.10 per lb on Wednesday August 10, down from $23.60-25.25 per lb on August 9.

Fastmarkets’ assessment of the US premium for nickel in briquette — a form favored by battery makers — is more than five times what it was a year ago, partly due to production shortages and strong global EV demand.

Fastmarkets assessed the nickel briquette premium, delivered Midwest, US at 130-200 cents per lb on Tuesday August 9, flat since June 7 but up from 30-35 cents on July 20, 2021.

The most common EV battery type uses a combination of nickel, cobalt and magnesium (NCMA) in the cells of lithium-ion batteries. But many metals feature in the US revolution, including graphite, silicon and tin in batteries; copper in charging stations; and aluminium and lightweight steels in car bodies.

US lags behind other regions in EV adoption, where subsidies helped

A second supplier of nickel and cobalt said the Inflation Reduction Act might spur the US from its lagging position in global EV adoption behind Asia and Europe.

“The law unquestionably will increase US EV take-up over the next few years. Previously, it was forecast that EV sales in US would almost double to over 7% of the market in 2022 and crucially 5% has been put forward by a number of analysts as the ‘tipping point’ to broader EV adoption,” he said.

Subsidies encouraged EV adoption in other regions, notably China. “EV uptake here [in the US] is still concentrated at higher income levels… it is going to take some time before price and range anxiety reassure consumers enough to make EVs a mass-market proposition,” Meir said.

Yet, even with a minority of US EVs and consumers potentially affected by the legislation, most say it can only help.

“The bill sounds bullish for EVs and nickel, so as it gets closer to fruition it should become a supportive factor,” principal analyst with Fastmarkets research Andy Cole said.

Aluminium, especially scrap, should benefit from more EVs

Fastmarkets research analyst Kirstine Veitch agreed. “If it goes through, it will certainly stimulate purchases of EVs from 2023 on,” she said.

Outside batteries, aluminium features strongly in the move to EVs. The so-called “light metal” is set to overtake steel in car bodies because lighter vehicles are required for electric transport, though ultralightweight steels are also being developed.

“It would be interesting to see how scrap would be factored in, in terms of geographical origin,” Veitch said. “For aluminium usage — as opposed to battery materials, which are still dominated by prime metals — I think that would be key in the way that demand is developing,” she added.

The US, while generally more of a metal consumer than producer, produces abundant scrap, sources note.

Aluminium scrap prices have been falling, along with the benchmark premium for primary aluminium, amid weakening demand and economic uncertainty.

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Inflation may put the brakes on EV buying, even with incentives

An aluminium trader expected little immediate price benefit from the new legislation. “It might help at the margins, but if consumers don’t feel good they won’t want to buy cars of any type,” he said.

US inflation has just come off a 40-year high, according to government reported data on August 10. But at 8.5% in July, it remains historically high, with the cost of automobiles and gas prices major contributing factors.

Financing costs also have risen, with the US Federal Reserve Bank having repeatedly raised interest rates this year.

“A car loan at 6.5% [interest, potentially] is a very different equation than one at 1.5%,” the trader added.

“Nuts,” was how director of metals equity research with KeyBanc Capital Markets Phil Gibbs reacted to the EV incentives. “The government apparently doesn’t understand that creating/spending money that we don’t have creates more inflation,” he said.

“The current bill [changes are possible until the moment of passage] would essentially upgrade existing EV tax credit legislation,” Fastmarkets analyst Veitch noted. For example, it gives credits at the point of sale and removes previous limits on manufacturers giving credits.

Not just EV benefits — US aluminium and steel associations welcome the Act
Major US metal trade groups welcomed legislation expected to boost metal demand for many applications, not just EVs.

“On the passage of the Inflation Reduction Act [by the US Senate, initially, on Sunday August 7], while we continue to review the specifics of the legislation, it is clear that increasing moves toward electrification in the vehicle fleet and elsewhere will benefit US aluminium,” a spokesperson for the Aluminium Association said.

“Aluminum is also the most used material in solar panels and in electricity transmission and distribution generally,” he added.

Representatives of the American Iron and Steel Institute told Fastmarkets that steel would benefit from many measures in the bill, with more steel needed, for example, in clean energy generation facilities and electric vehicle charging infrastructure, as well as in the vehicles themselves.

This bill is good for steel, EVs are good for steel

“This bill is good for steel, EVs are good for steel,” an AISI spokesperson said, adding it is “flawed” to assume that the only material used for lightweight vehicles is aluminium.

Mainstream auto manufacturing is configured to use steel and steel is a more affordable metal also in other types of clean manufacturing, AISI said.

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