Five things we learned about battery raw materials at LME Week 2022
Key battery raw materials such as cobalt and lithium were among the main discussion points at London Metal Exchange (LME) Week during the week of Monday, October 24
Lithium fundamentals a focal point at LME week
Lithium demand is expected to continue growing in the year ahead, with the uptake of e-mobility gathering momentum worldwide and supply struggling to catch up. This could lead to price volatility for the material, Fastmarkets heard during LME Week.
Fastmarkets research forecasts 698,900 tonnes of lithium carbonate equivalent (LCE) demand for 2022, increasing to 884,400 tonnes of LCE demand in the following year.
Supply is forecast to increase from 679,400 tonnes of LCE in 2022 to 895,900 tonnes in 2023, leaving the market in a slight surplus.
“Demand is expected to continue to grow rapidly, and I believe the main concern continues to be how fast supply will respond,” a lithium intermediary told Fastmarkets.
Regulation, permitting and funding remain challenges for lithium supply
More lithium needs to be produced, most sources said, but lithium mining poses significant environmental and social challenges in Europe, and the permitting processes take considerable time before a new operation can be brought online.
Environmental problems relate to carbon emissions, land use changes, and water use and contamination.
Lengthy permitting and regulatory hurdles also pose a challenge further upstream. Midstream refining capacity to upgrade the raw materials into chemicals suitable for battery applications also requires permits that can be time-consuming to obtain in Europe, sources said.
Uncertainty about time frames, due to regulatory and permitting issues, also makes it difficult to secure funding for the projects, which in turn makes it harder for more capacity to come online.
“Funding is hard to acquire when you don’t know the timeline of a project,” one lithium market participant said.
MHP emerges as a cobalt hydroxide competitor
Many producers, consumers and traders see nickel-cobalt mixed hydroxide precipitate (MHP) as a competitor product to cobalt hydroxide, especially with production of the material ramping up in Indonesia.
There is a growing demand for MHP, one consumer source told Fastmarkets, because the product is a pre-cathode active material (PCAM) that arrives to plants already in a similar chemistry proportion to nickel, cobalt and manganese batteries, shortening the processing stage for production.
Fastmarkets assessed the nickel mixed hydroxide precipitate payable indicator, % London Metal Exchange, CIF China, Japan and South Korea at 75-78% on Friday October 28.
These payable deals are notably higher than they were a month earlier, when participants were reporting payables of around 70%.
The cobalt hydroxide payable indicator, min 30% Co, cif China, % payable of Fastmarkets’ standard-grade cobalt price (low-end) was assessed at 60-63% on October 28, down from 88-90% at the start of the year.
The decline was driven by weak demand from Covid-19 lockdowns in China.
The cobalt market further downstream continues to face pressure, with weak demand from China’s electronics sector squeezing margins for those processing cobalt hydroxide to sulfate.
The price of cobalt sulfate 20.5% Co basis, exw China was assessed at 61,000-62,000 yuan per tonne ($8,375.-8,512), down by 2.68% from the week before.
“Using MHP is good business,” a second consumer source said. “There’s a good margin between the payables and sulfate.”
MHP is set to increase exponentially. On the production side, MHP output has increased by 1,691% since 2011 to 113,500 tonnes expected to be produced in 2022, Fastmarkets research shows.
Shipping for the material from major production hubs such as Indonesia and New Caledonia is also much more streamlined than shipping hydroxide from the Democratic Republic of Congo (DRC) to Durban in South Africa and then to China, market participants said.
Durban has faced several logistical hurdles this year, from floods at the port’s warehouses to labor strikes.
Market participants in cobalt metal market face uncertainty
Market participants in the cobalt metal market are facing a variety of trends, depending on the sector and where they are active.
For those in the European market, especially in the chemistry end-use sector, participants say macroeconomic trends such as high energy prices, growing inflation and subsequent higher interest rates are expected to push demand lower.
Market participants say they are also bracing for more supply in Europe of certain grades of cobalt metal, including Chinese brands, with a weaker downstream cobalt market in Asia as well as a steep fall in freight rates compared with earlier in the year.
“Some are buying metal in China, but it’s very slow at the moment,” a third consumer source said. “So, sellers are looking to export if they can, for better margins. The issue is though, Chinese metal is largely cathodes, which not everyone can use. Plus, sensitive industries won’t touch Chinese-origin [material], so exports are only going to certain places.”
Cobalt metal exports out of China totaled 465 tonnes in September, up by 92.95% from a month earlier, and up by 511.84% from last year.
“Consumer electrics demand in China is in a depressed state at the moment,” a cobalt producer source said. “There is hope that it will pick up again if the rumors around the zero-Covid policy become realized and things start to unwind, but the metal market is very consumer-sentiment driven in China.”
Despite the bearish sentiment throughout the week, market participants said there will still be a need for NCM battery chemistries, particularly in Europe and the US, due to winter weather and a focus on range in those markets.
“The growth for cobalt is present but steady and will not be dramatic,” a second producer source said.
The expected trend in Europe contrasts with the US where, market participants say, the economy remains stronger compared to Europe and super alloying demand remains robust, especially from the aviation sector.
The difference between the two markets is reflected in the gap between standard-grade cobalt and alloy-grade cobalt.
“Cobalt is the only battery material to be a laggard,” one trader said.
Artisanal mining again a key discussion point for cobalt supply
A renewed interest in improving and regulating artisanal and small-scale mining (ASM) of cobalt in the DRC was a topic of discussion during LME week.
“Artisanal mining can be beneficial for cobalt if it is regulated, but international mining standards must be applied, for safety reasons,” Kostas Bintas, co-head of metals and mineral trading at Trafigura, said during the Fastmarkets’ panel discussion on October 24.
The DRC accounts for around 70% of total cobalt mine supply, with between 10 and 20% of the volume estimated to originate from artisanal sources.
Much of the discussion echoed sentiment from the Cobalt Institute conference in May 2022 where a push to formalize ASM was presented by the DRC minister of industry.
“If we ban artisanal mining, then whole communities will be left without a source of income,” a third producer source said. “With livelihoods destroyed, it’s inherently better to regulate the practice.”
A real push from end consumers is required to make any real change, other attendees at the LME Week panel discussion told Fastmarkets.
“The whole supply chain must be involved to incentivize the change needed,” one trader said. “End consumers need to show they are willing to take ASM material to improve the daily conditions there, but there is a big risk of it going wrong or too slowly, with reputations at stake if conditions worsen.”
The LME has announced that a standard for ASM has been integrated into the LME passport platform. The standard will use the EGC (Entreprise Générale du Cobalt) Standard, established for the maintenance of safe and strictly controlled ASM zones in the DRC.
Visit our dedicated battery raw materials page to discover more insights on the factors at play in the industry in 2022 and beyond.