Battery demand from the EV (electric vehicle) industry will grow dramatically through the 2020s, with Benchmark Mineral Intelligence (Benchmark) forecasting demand to increase 15x by the end of the decade.
Across the board, we have already begun to see the emergence of battery demand impact some of the traditional industrial applications for lithium, cobalt, graphite, and nickel.
These changes from battery consumption have come from relatively low demand growth compared with what we can expect to see during the rest of this decade. However, it has disrupted what was quite an inflexible supply structure in each of these markets and exposed the fact that bringing new resources into production can take a very long time and cannot be achieved as rapidly as battery demand would dictate.
Here, we outline the impact the battery industry has had on raw materials markets during the past five years.
The biggest development on the lithium supply side has been that in order to bring new supply to the market quickly, hard rock resources have emerged as the leading source of new supply. It has been faster to bring these projects to market than brine resources in South America, and they have typically been located in more mining-friendly jurisdictions, namely Western Australia. As a consequence, in recent years we have seen a shift in the balance of supply away from brine as the primary source of feedstock into the lithium market, which was widely accepted to be the lower cost source of material.
This transition has seen spodumene become the leading feedstock into the lithium market today, with Australia accounting for 44% of lithium supply in 2020 according to Benchmark’s Lithium Forecast. However, the ramp up of spodumene operations following lithium’s price increases of 2016-2018 has been followed by a period of oversupply and falling prices since mid-2018. This has consequences for the future structure of the lithium market, with prices currently too low to incentivise the development of new supply, which will be critical as battery demand ramps up dramatically through the 2020s.
For graphite, the biggest development story for supply is that there has finally been some diversification outside of China. Historically, China has supplied upwards of 70% of global production. With the emergence of operations outside of China, we are seeing a new competitive, low-cost, and high-volume source of flake graphite material. The competition for that new material has led China to look to maximise its own resources as well as import material from elsewhere.
The key thing in flake graphite now (compared to five years ago) is that the market is becoming centred around value-add applications rather than traditional flake graphite concentrate markets. While these markets still take up the majority of flake graphite demand, that is going to be very quickly eclipsed by demand from the battery market and high-value markets such as expandable graphite and different types of specialist applications.
The evolution of China’s role in the market has seen the country move from being a low-cost exporter to the rest of the world’s value-added industries, to having its own domestic value-added market. More flake graphite than before is staying within China and it’s also starting to require more material from outside of its borders.
What that ultimately means is that the rest of the world will no longer be able to rely solely on China for the source of low-cost material for its value-added own purposes and, because of that, the industry is going to see a push for diversification and more mines will need to be developed outside of China.
There has not been a huge evolution in supply terms in the cobalt market, but there has been the need to develop new resources. It has become clear that bringing new supply to the cobalt market is possibly the most challenging task in the whole battery supply chain.
Ultimately, because the supply chain is dependent on the production of cobalt as a by-product of copper mining, and with the composition of different resources around the world that have cobalt assets, the DRC (Democratic Republic of the Congo) is the central player in the cobalt supply chain. In 2020, Benchmark’s Cobalt Forecast shows that the DRC will produce 73% of global supply and that, by 2030, the DRC’s market share will only have reduced slightly to 69%.
A major area of development in terms of cobalt’s supply structure is how companies can grasp and control the sustainability of their supply chains. That has been a huge issue over the past five years, especially following the fallout following Amnesty International’s report which highlighted the involvement of artisanal-sourced cobalt in the supply chains of a number of major tech and auto companies.
Since the Amnesty report, a huge amount of effort has gone into understanding the supply chains in the DRC. Now you have big international bodies, such as the World Economic Forum, as well as leading end-users such as Samsung, Volkswagen, and BMW, who are looking at how to make the DRC supply chain more sustainable while trying to add some diversification of supply outside of the DRC.
There will be the need for supply from outside of the DRC —and Benchmark’s Cobalt Forecast shows that over a quarter of supply will come from ex-DRC sources— but to meet the type of growth levels that are going to be needed from cobalt over the coming years, there is going to have to be more production from the DRC and more recycled sources of cobalt coming back into the supply chain.
The big development in nickel has been that any expansions at a raw material level have been centred around laterite ore. This is important because from a battery supply chain perspective, nickel would typically be sourced from nickel sulphides, as these would be typically be higher-quality and lower-cost sources. However, sulphide resources are not being developed, which means that laterites, particularly those in Indonesia, will be the driving force of expansions in the nickel market.
The big question when looking at the nickel supply chain is: what is the favoured type of feedstock for nickel sulphate production?
It is not impossible to produce battery suitable nickel sulphate from laterites, although there are associated additional costs.
If producers can start to process some of the intermediates in that supply chain — depending on whether they are trading at a premium or a discount to the metal price — it will ultimately dictate the economics of the nickel laterite to nickel sulphate supply chain. The battery supply chain issues facing nickel are more at a refining level than the mining level.
Nickel is slightly different from the rest of the battery raw materials industry in that it is from a much bigger commodity market. But for the battery market, the area under the most scrutiny and under the most pressure from the rise of battery demand is nickel sulphate and the various supply chains into that part of the market.
For the raw materials to keep up, significant investment is required.
The disruptive nature of battery technology has only just begun to take effect. EV adoption remains in the single figures, with the bulk of auto sales still centred on traditional internal combustion engines.
This has already led to transformations in the industries feeding into these supply chains. As EV demand continues to scale up during the 2020s, these dramatic transformations will only continue at a greater pace.