Modern Mining February 2024

COMMODITIES OUTLOOK

Markets turn bearish across the major lithium-ion By Martin Jackson: Head of Battery Raw Materials at CRU

Volatility and complexity risks investments in the battery market The energy transition is driving unprecedented demand for lithium ion batteries and their constituent raw materials. In this decade, the largest end-use sector is battery-electric vehicles (BEV), although stationary energy storage is rapidly growing in line with the build out of renewable energy capacity. However, the rate of growth in demand is slowing down in the short term, inventories are high across the supply chain, shifts in battery technology are enabling material thrifting, and mined sup ply of materials is surging from new sources. The combination of these is pushing prices lower, enabling cheaper electric vehicles and energy storage systems. This in turn will increase the risk that growing demand will overshoot supply again in the longer term. Supply overshoots demand across the supply chain Battery material prices were elevated in 2022 as demand over shot raw material supply, which subsequently led to a slowdown in early 2023. In China, the world’s largest BEV and battery market, on this occasion the dip in demand was due to a combination of an early Spring Festival and the expiry of BEV purchase subsidies. At the same time, battery manufacturers built up burgeoning invento ries of battery cells, and this rippled up the supply chain into much lower spot market activity for raw materials. A seasonal lull in BEV sales is to be expected and should not be extrapolated into the long term, but the level of inventories in China will take time to draw down on, and consumers have reduced their spending due to macroeconomic factors. From a demand perspec tive, this contributes to the bearish outlook into 2024. Shifts in battery technology are enabling thrifting and substitution of battery materials, softening the demand outlook At the same time, improvements to the electrochemical perfor mance of cathode materials and efficiency elsewhere in the battery Industry research firm CRU lays out the short-term supply-demand fundamentals of the major lithium-ion battery metals.

Growth in electric vehicle sales is steadily making a comeback.

and vehicle powertrain, are altogether making a positive effect on energy density. This in turn means less material is needed for the same battery capacity. This will continue for many years, but in the short term another trend is having a more profound effect on nickel and cobalt demand, namely the uptake of low-cost lithium-iron-phosphate (LFP) batteries. Thanks to technical advancements, the traditional disadvantage of low energy density and EV driving range of LFP is now a thing of the past. Combined with a robust ramp-up of the supply chain, LFP now accounts for 60% of battery production in China. Batteries destined for energy storage in China are virtually all LFP. The damage to nickel and cobalt battery demand in China will almost certainly last into 2024, although it will take longer for LFP to make an impact in other markets. Chinese NMC precursor pro ducers have been aided by substantial orders from South Korean cathode producers, which in turn are exporting to Europe and North America. On the global level, NMC batteries will continue to maintain the dominant share in 2024. Supply: Slower demand growth has combined with a supply surge as new developments in Indonesia, Zimbabwe, Brazil, and Canada come online.  For lithium, as large mine investments continue to be announced despite a rapid fall in pricing, oversupply is increasingly a risk.  For cobalt, thrifting and substitution has lowered intensity of use drastically. In parallel, growing supply from African miners and Indonesian laterite operations is pushing the market into oversupply.  For nickel, production from laterite resources in Indonesia continues to grow more rapidly than nickel-based battery demand can absorb. Lithium deficit rapidly narrows Booming prices over the past couple of years have encour aged a large contribution of supply from high-cost sources.

Lithium-iron-phosphate batteries accounted for 60% of production in China last year, and do not contain nickel and cobalt.

8  MODERN MINING  February 2024