A raw-materials supply crunch looms in the lithium, cobalt and nickel markets as electric vehicle (EV) sales increase and industry and government pick up the pace and number of initiatives to electrify transportation. Supplies could fall far short of demand by the mid-2020s given the accelerating pace of demand for battery metals, according to Wood MacKenzie.

How fast and to what extent the electrification of transportation takes place will have a fundamental impact on the nature, volume and timing of electricity flowing across power grids. "Total passenger electric vehicle (EV) car sales, including hybrid electric vehicles (HEV), were up by over 24% last year. Although HEVs had the smallest growth, they made up over 60% of EV sales. Wood Mackenzie expects global electric car sales (with a plug) to account for 7% of all passenger car sales by 2025, 14% by 2030 and 38% by 2040," the market research specialist highlights in Global battery raw materials long-term outlook H1 2019.

“It’s true that most automotive manufacturers plan to go completely electric by 2050. However, unless battery technology can be developed, tested, commercialized, manufactured and integrated into EVs and their supply chains faster than ever before, it will be impossible for many EV targets and ICE bans to be achieved – posing issues for current EV adoption rate projections,” said Wood MacKenzie Research Director Gavin Montgomery.

A shift in EV battery metal composition

The size and composition of the latest generation of EV and transportation batteries is shifting as well as manufacturers increase their capacity and reduce reliance on cobalt, most of which is mined in the Democratic Republic of Congo (DRC) and associated with labor, human rights and environmental abuses.

“Battery pack sizes continue to trend larger through the medium term, resulting in overall greater battery demand. We have seen the first announcements of the commercialization of NMC 811 cells in EVs. Unsurprisingly, China was the first mover here, but the likes of SK Innovation are intent on the mass production of 811 cells before the end of 2019. While still conservative on mass market uptake for these cells, we are more optimistic in regards to adoption. As such, we expect to see an increased nickel demand at the expense of cobalt, and to a lesser extent, lithium," Wood MacKenzie's analysts write.

Cobalt prices have been falling in parallel during the first six months of 2019, they add. “Like lithium, cobalt prices have softened over H1 2019 – though more with a crash than a steady decline. The low prices may defer some mine projects and are likely to see reduced artisanal output from the DRC.

"However, the industry must still contend with an oversupply of intermediates at least out to 2024. While metal supply continues to contract, the existence of swing supply in China is likely to keep a lid on any major price upside. Although cobalt continues to look challenging in the long-term, the increased adoption of high-nickel batteries in EVs means the emerging deficits look slightly more achievable than previously expected," according to the market research report's authors.

Spot market prices for lithium carbonate, the most common form used to manufacture battery packs, have plummeted, as well, falling below $7,000 per metric ton since June 2018, they add. “It has only taken a few years for the battery sector to become the largest demand driver for lithium. Lithium’s use in every lithium-ion battery type means it will have double-digit annual growth, making up over 80% of total lithium demand by 2030,”Montgomery said.

“We are seeing the same weakness in the realized prices of the majors and their expectations for H2 2019. And this is in an environment where the major brine producers in South America have failed to ramp up capacity. Clearly, the first responders to the lithium boom – Australian hard rock mines – have the capability to quickly deliver the required tonnages. Meanwhile, the bottleneck in Chinese conversion capacity that was supporting prices is giving way as China emerges as a net exporter of lithium chemicals to the region."

Stigmatization of cobalt mining and miners

Back in June 2018, Elon Musk tweeted that the nickel-manganese-cobalt (NMC) batteries used in Tesla Model 3s contain less than 3 percent cobalt, and promised that the EV manufacturer's next generation battery will have none. Musk's statements reflect the publicly stated views of commercial and industry players across the cobalt market supply and value chain.

Members of the Cobalt Institute, representing some 70% of mined cobalt production globally, "are very concerned about what has been reported on illegal artisanal mining in the Democratic Republic of Congo (DRC) and there is a risk of unjustified stigmatization of all cobalt producers, including those in the CI and International Council for Mining and Metals (ICMM), who for many years have followed strict corporate policies against the use of child labor and in the respecting of human rights."

General stigmatization of cobalt mining and miners would unjustly punish miners mine and process cobalt legitimately and in full compliance with local regulations and international health, safety and environmental standards, the institute points out. "It is also important to avoid the effects of unnecessary stigmatization of the responsible bona fide LSM [large-scale mining] industry that offers income, safe working conditions and protection of human rights, who may eventually decide to reconsider operating in that country."