FOCUS: Elevated nickel prices to stifle nickel-rich battery adoption, cobalt demand unlikely to benefit significantly

Strong gains in nickel prices since the start of the month and the expectation that this strength will persist are likely to slow the pace of nickel-rich battery adoption in the electric vehicle (EV) market in the near term, market participants told Fastmarkets.

But this dynamic is unlikely to result in cobalt demand picking up significantly, they added.

Following an announcement by the Indonesian government on August 30 that it would implement a ban on nickel ore exports from the end of this year – two years earlier than had been previously expected – nickel prices surged in anticipation of a supply shortfall from the beginning of 2020.

The three-month nickel price on the London Metal Exchange hit an intra-day high of $18,850 per tonne on September 2, nearing its highest in five years. Although the price gave back some of its recent gains, it remains firmly above $17,000 per tonne, after remaining well below that level since September 2014.

This acute upturn in nickel prices and the possibility of further increases in the near future has quickly caused some EV manufacturers and battery producers to balk at utilizing and producing nickel-rich batteries, market sources told Fastmarkets.

“A customer who had told me they were making a choice between nickel-cobalt manganese (NCM) 523 and NCM 622 batteries, informed me soon after nickel prices had jumped that they would go for the former,” a battery materials producer said, adding that the cost concern was the main reason behind the switch.

Fastmarkets’ weekly assessment for nickel sulfate, Ni 21-22.5%, Co 10ppm max, ex-works China was 31,500-32,000 yuan ($4,426- 4,496) per tonne on September 6, up by 4,500 yuan per tonne – 16.5% – from 27,000-27,500 yuan per tonne a week earlier.

“Nickel is likely to maintain the momentum for a while, and even if the metal’s prices correct in the future, they are likely to remain at quite high levels,” the producer said.

“Automakers have a lot of power in price negotiations,” a second battery materials producer said, adding that it is therefore difficult for the higher nickel prices to filter through the supply chain.

Cobalt demand may not be supported
While the adoption of nickel-rich batteries in the EV sector is likely to be hindered by the spike in prices for the metal, this does not necessarily mean that consumers would exclusively turn to cobalt-rich alternatives, market sources told Fastmarkets.

“Customers are also taking a watchful stance, and it seems they don’t want rush for a change,” a third battery materials producer said.

“We are still producing according to consumers’ orders, which have been planned and wouldn’t be changed suddenly,” he added.

The slow progress around the adoption of nickel-rich batteries, such as the NCM 811 batteries, in EVs is not solely due to high nickel prices, but also due to the fact that there are still technological obstacles that need to be overcome before nickel-rich batteries can function safely in EVs, battery material producers told Fastmarkets.

“After all, [even before nickel prices rose,] the demand for NCM811 battery was not that promising as a direct result of these technological obstacles,” a fourth battery materials producer said.

Market participants also pointed out nickel-rich batteries are mostly used by high-end EVs, whose customers are likely to more easily accept a higher sales price due to the upturn in nickel prices.

“If you want the driving range of the electric vehicles to hit 600km, only the NCM811 battery can achieve it, and therefore, for high-end electric vehicles, they can only use NCM811 battery,” the third battery materials producer said.

In addition, China’s latest EV subsidy policy and market expectation that such subsidies will be canceled in 2020 remain the main drivers behind a stall in the wider adoption of NCM batteries, including those that are cobalt-rich.

Chinese EV production and sales dropped by 37.2% and 47.5% month on month respectively in July, according to data from the China Association of Automobile Manufacturers (CAAM). On a year-on-year basis, production was down by 6.9% in July and sales fell by 4.7%.

“The demand for EV batteries from the automobile sector is not promising,” Vicky Zhao, Fastmarkets battery raw materials analyst said. “Therefore, even if nickel-rich battery adoption is only temporarily disrupted by the high nickel prices, there also won’t be any meaningful improvement in the demand for cobalt.”

Persistently high nickel prices to boost popularity of LFP battery

Earlier this year, when the Chinese government announced an increased threshold for electric vehicles to receive subsidies, market participants widely believed lithium-iron phosphate (LFP) batteries would become a favorite among EV makers due to their significantly lower production cost compared with NCM batteries.

With nickel prices at hovering near multi-year highs, LFP batteries will likely gain more market share from NCM batteries, market participants told Fastmarkets.

“If nickel prices continue to move up, some EV makers are likely to turn their eyes back to LFP batteries,” the second battery materials producer said.

“Some EV makers have already put LFP batteries back on the table since they could no longer balance the book with the current production costs of NCM batteries,” he added.

Fastmarkets assessed the price for cobalt sulfate, Co 20.5% basis, ex-works China at 52,000-54,000 yuan per tonne on September 6, up by approximately 45% from the start of August when the price initially began to trend upward.

To find out what is driving the battery raw materials market, join our free webinar on Wednesday September 18. Click here to register.