EU battery recycling targets face feedstock hurdles

The European Union’s recently announced targets for battery recycling faces questions about whether there is enough recycling capacity and feedstock supply to meet the trade bloc’s goals in the coming years

The EU council and parliament announced a raft of regulations at the start of December, which included recycled battery collection targets and obligations, and targets for the recovery of materials to meet its decarbonization goals. Both chambers will have to formally adopt the new regulation before its gradually enforced starting in 2024. The set of proposed regulations will also replace the trading bloc’s Batteries Directive from 2006.

It also calls for industrial, start, light and ignition and electric vehicle (EV) batteries to have mandatory minimum levels of recycled content. Those levels are set at 16% for cobalt, 85% for lead, 6% for lithium and 6% for nickel. The regulation did not state a timeline.

The legislation calls for lithium recovery rates from waste batteries to reach 50% by 2027 and 80% by 2031, with amendments possible depending on the market and technological developments as well as the availability of lithium.

According to the EU, the legislation is driven by an expected increase in battery demand throughout the next decade and the need for sustainable supply to feed into the demand.

“As demand for batteries will grow by more than ten-fold by 2030 we need to make sure we have enough batteries and that they are sustainable throughout their supply chains,” Marian Jurecka, Czech minister of the environment, said in the announcement.

“The new rules will promote the competitiveness of the European industry and ensure that end-of-life batteries will be properly collected and recycled so that useful materials are recovered and toxic substances are not released into the environment,” he added.

Implementation of the law will also mean those who want to do business within the European Union will need to comply with its regulations.

Diversification of supply sources

Driving production of recycled materials helps shield the EU supply chain from long-term volatility from geopolitics and logistics issues, with the global economy dependent on a small number of countries that dominate battery raw material production.

According to the US Geological Survey (USGS), the Democratic Republic of the Congo produced more than 70% of the world’s global supply of primary cobalt in 2021. Primary lithium production from Australia accounted for 55% of global production.

“Newly extracted materials present challenges,” according to a note on battery raw materials published by consultancy firm McKinsey in October. “They are expected to represent the vast majority of total supply through 2030, so battery manufacturers are highly dependent on commodity material prices. And recent supply chain disruptions have significantly increased the price of key materials by more than 20%, which caused the costs of lithium-ion batteries to increase in 2021 — the first time in many years.”

Battery raw materials hit record highs throughout 2022 on supply fears.

Fastmarkets’ assessment of lithium hydroxide monohydrate LiOH.H2O 56.5% LiOH min, battery grade, spot price cif China, Japan & Korea was $84-86 per kg on Wednesday December 21, an all-time high and up 142% since the start of the year, with demand outpacing supply.

Fastmarkets assessed cobalt standard grade, in-whs Rotterdam was assessed at $39.75-40.50 per lb on May 3, a three-year high, due to supply concerns following Russia’s invasion of Ukraine earlier in the year.

The London Metal Exchange nickel three-month contract surged above $100,000 per tonne in March, prompting the temporary suspension of trading.

While increasing supply from scrap provides a way to increase and diversify battery raw material supply, market participants said there is not enough feedstock of used batteries to produce secondary materials.

To meet the expected EV demand, the legislation also has set targets for producers to collect waste portable batteries: 63% by the end of 2027 and 73% by the end of 2030. There is also a dedicated collection objective for waste batteries for light means of transport: 51% by the end of 2028 and 61% by the end of 2031.

“The agreement also includes waste collection targets for producers but many market participants doubt this will mitigate the increased demand for spent batteries,” according to Julia Harty, recycled battery analyst at Fastmarkets Research.

According to data from Fastmarkets Research, recycled battery raw material supply only covers a small portion of demand on a gigawatt per hour (GWh) basis.

“The EU may have to recalibrate these ambitions, they’re certainly sensible to have but we need to marry them to reality,” Farid Ahmed, vice president of global strategy and business development at ACE Green Recycling, said.

ACE Green Recycling and trading house Glencore announced a long-term supply agreement early December for recycled lead, as well as for several battery metal end-products recycled from lithium-ion batteries.

The 15-year agreement will allow for the purchase of as much as 100% of ACE’s products from four proposed lead-acid and lithium-ion battery recycling facilities under development in the US, India and Thailand.

Scrap derived from battery manufacturing, end-of-life recycling from EV, energy storage systems (ESS) and electronics is expected to grow globally from 52 GWh in 2022 to 162 GWh in 2027 — a milestone year for the EU’s recycling goals.

Meanwhile, total EVs including ESS and consumer electronic batteries, commercial vehicles, plug-in hybrids, low-speed EVs and other forms of transportation is forecasted to grow globally from 704 GWh in 2022 to 2,666 GWh in 2027.

“There may not be enough scrap coming back fast enough to get enough recycling, even if you scrap every [battery] you get, even with high recyclability [recovery rates],” Ahmed said.

Longer lifespans of EV batteries are just some of the challenges that face the idea of a market supplied by recycled materials, according to cobalt producer Eurasian Resources Group’s (ERG) 2023 outlook.

“Secondary supply, such as recycling, is one avenue to bolster future supply of cobalt,” ERG said in its outlook. “However, the secondary supply chain faces severe challenges in the foreseeable future from underdeveloped collection networks, poor regulatory frameworks, safe handling constraints, evolving battery chemistries and design, price volatility and, of course, the long lifespans of EV batteries, which will constrain feed supply.”

Scrap premium?

Should the EU follow through with its recycled content regulation before the further development of the secondary battery raw material market, some market participants say it could lead to a premium for recycled materials in order to meet the EU’s mandate.

“We could see secondary products come under higher value if people have to get a higher recycling content,” Ahmed said. “It’s almost as if they have to have a premium to get that license or commission to sell into the EU.”

A potential premium for recycled material is not just limited to batteries.

As environmental, social and governance credentials come more into focus on a corporate and governmental level, some market participants expect an increase in demand for recycled material.

“I don’t think we will see units using scrap or re-melt aluminium being discounted for much longer if the consumers need is more related to meeting their sustainability goals,” an aluminium market participant said. “A lot of automakers are looking at how they can use more recycled metal and it is in tight supply, so you have to pay up.”

Alice Mason in London contributed to this story.

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

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