Rising battery demand drives allure of technology minerals

Interest in technology metals and minerals has surged in recent years along with growth in the market for electric vehicles. Lithium ion batteries used to power electric vehicles need chemicals derived from lithium, cobalt, nickel and graphite. The Northern Miner recently spoke with Caspar Rawles, an analyst in London at Benchmark Mineral Intelligence. Benchmark offers price data, analysis and forecasting services for lithium ion battery raw materials, particularly lithium, graphite, cobalt and nickel.

The Northern Miner: Prices for lithium carbonate and lithium hydroxide have surged in the last few years on the back of growing demand for lithium ion batteries.

Caspar Rawles: The supply chain is under a big squeeze at the moment and there’s huge demand for lithium. Between 2005 and 2008, we saw the average price for lithium carbonate at US$3,500 per tonne and the average price for lithium hydroxide at US$5,000 per tonne. Between 2010 and 2014, the average for lithium carbonate was US$5,000 per tonne and for lithium hydroxide US$6,000 per tonne. During 2015 and 2016, you’re looking at just over US$9,000 per tonne for carbonate and just under US$14,000 per tonne for hydroxide.

In May 2017, the prevailing price of lithium carbonate was US$12,000 a tonne and lithium hydroxide was US$16,000 per tonne.

It’s important to note that prices we are seeing in China are much higher than this — 60% higher for carbonate and 40% higher for hydroxide.

And while prices have moved up quickly, they have remained stable at the higher level from the fourth quarter of 2016 until now. It was a two-year price surge, and we don’t see any sign of a price crash, and there is likely to be another price surge. Between 2017 and 2020, we anticipate the average carbonate price will be US$13,000 per tonne and for hydroxide, US$18,000 per tonne. We expect prices to remain stable if not higher, underpinned by long-term demand.

TNM: That’s a big jump in the price forecast. What are the main factors at play?

CR: It’s partly due to a lack of investment in the space and the difficulty and lead time of bringing lithium projects online.

The quickest access is lithium from spodumene hard rock deposits, but lithium from brine projects takes longer to bring onstream, and that’s why we’ve seen such a squeeze on supply. The real driver is growing demand from the lithium-ion battery industry, particularly from the electric vehicle market.

TNM: Why are prices higher in China?

CR: There are two reasons: they tend to convert the lithium feedstock they get from hard rock spodumene deposits in Australia, which is more expensive to do than from brine sources. And over the last 18 months, Chinese chemical converters haven’t been able to get a hold of the spodumene feedstock they require.

From the buyer’s side, the rush for cathode manufacturers to secure long-term supply has been a major factor pushing the price up. It is long-term supply security over price right now, and we don’t see that changing anytime soon.

This year the price for lithium hydroxide in China is between US$21,000 per tonne and US$25,000 per tonne, and between US$18,000 per tonne and US$22,000 per tonne for lithium carbonate.

TNM: What is the outlook for lithium supply?

CR: Any supply that comes online is going to be welcomed in the market because there will be buyers. Any lithium producer is going to have a pretty good time with prices where they are. It’s the same with cobalt, but the critical factor is locking in supply for the next four years, and that will have to come at a price.

TNM: How would you compare the importance of cobalt and lithium when it comes to lithium ion batteries?

CR: Cobalt is more valuable than lithium in a lithium ion battery, but by weight, there’s more lithium in a lithium ion battery than cobalt. It also depends on what kind of battery chemistry you are talking about. For a battery in your laptop or smart phone, 60% will be cobalt. And we know pretty much that there’s saturation in most developed markets for laptops and cell phones, so we don’t expect that market to grow.

The real growth in the battery market is from electric vehicles. Lithium is used as an electrolyte and all batteries use lithium. The nickel-cobalt-aluminum battery that Tesla uses, for example, is relatively low in cobalt but much higher in nickel.

Then there are nickel-cobalt-manganese batteries, and the amount of cobalt in those batteries can vary. Some lithium-ion batteries don’t contain any cobalt, but these cells aren’t so common and tend to be used in electric buses. Cobalt is a smaller market and is important, but there is no option at the moment to make a battery without lithium.

The key thing about all of these cells is that the amount of lithium remains the same, so it’s not straightforward. You can’t just say cobalt is more important in a battery than lithium.

TNM: Can you take us through the numbers for lithium demand in batteries?

CR: Last year, lithium demand for batteries was 75,000 tonnes. We forecast that in 2020, annual lithium demand for use in batteries will be over 150,000 tonnes — or put another way, 75,000 to 100,000 tonnes of additional lithium supply will be needed. It’s not easy to bring material online.

Lithium from brine resources take a long time, and some companies have had trouble doing so … this is not so much mining, but more speciality chemicals, which is why some companies struggle. It’s not something that can be done quickly.

Lithium from spodumene hard rock deposits can be brought online more quickly, but it takes money, investment and know-how. Building a spodumene hard rock mine might take three to five years and building a lithium brine mine might take seven to 10 years.

Batteries are becoming the main driver of the industry. In 2006, lithium battery demand accounted for 22% of global demand for lithium. In 2016, batteries accounted for 42% of all lithium demand, and that’s going to rise to 67% by 2020. Well over half of lithium demand will be consumed by the battery industry.

TNM: What is your outlook on cobalt demand and prices?

CR:  When we talk about cobalt prices what we are really talking about is the metal price, which is widely quoted. Cobalt metal futures are what is traded on the London Metal Exchange, but the metal doesn’t go into the battery. It’s cobalt in its chemical form. One of the main chemicals that will be bought by the battery industry and further refined to a battery chemical is cobalt sulphate. We started ramping up our coverage of cobalt last September and have just launched our cobalt tracker, which will track the price of cobalt sulphate.

The price of cobalt metal has more than doubled in the last 12 months. This time last year low-grade cobalt metal was US$24,000 per tonne, and it’s now over US$60,000 per tonne. Cobalt sulphate in contract prices is based off the cobalt metal price and there is a premium for cobalt sulphate, which can be negative or positive, compared to the metal itself.

The cobalt sulphate price is relatively similar to the cobalt metal price, but earlier this year prices were higher for cobalt sulphate than the metal, so it moves around.

There’s a strong relationship between the metal and the chemical price, and part of the reason is that cobalt sulphate got more expensive than the metal when people were converting the metal into sulphate. They keep each other in check. The premium for cobalt sulphate can move around, but I don’t think the difference will become too large.

We are finalizing our forecast numbers and at the end of July we will release our forecasts for the cobalt market out to 2025.

TNM: Where does China fit into the cobalt picture?

CR: China accounts for just over 80% of global cobalt chemical production. It’s the centre of the cobalt chemical market.

TNM: What does the landscape look like for graphite, another component in lithium ion batteries?

CR: In terms of price, graphite has not done what lithium and cobalt have done.

Unfortunately, graphite doesn’t get much attention, but it is an important part of a lithium ion battery. By weight in a cell, it’s the most abundant of these three materials (lithium, cobalt and graphite), so it’s an important part of the cell and will be for a long while. But prices have been relatively stable for some time now.

In May 2017, flake graphite was US$683 per tonne and uncoated spherical graphite was US$2,750 per tonne. Prices haven’t moved much since 2014, and probably were a bit higher then — closer to US$1,000 per tonne for flake graphite and US$3,250 per tonne for spherical graphite. Prices have ticked down since 2014, although there have been no dramatic movements in the average price.

Because more graphite supply is set to come online, we expect this trend to continue. For example, Syrah Resources (ASX: SYR; US-OTC: SRHYY) has plans to produce just over 300,000 tonnes of flake graphite a year from a mine it is building in Mozambique. This will be the most significant change to the graphite industry in many years.

The final step in the processing chain for the graphite industry is coated spherical graphite. (It is coated spherical graphite that goes into a battery cell).

The price of coated spherical graphite ranged from US$16,000 per tonne to US$22,000 per tonne between 2009 and 2013. From 2014 to 2017, the low was US$12,000 per tonne and the high was US$17,000 per tonne. And between 2018 and 2020, we think the low will be US$9,000 per tonne and the high will be US$12,000 per tonne.

There is excess capacity in the market. One of the other large consumers of graphite is the steel industry, and that industry has been depressed for some time, so there hasn’t been much demand there, and that’s why we see prices coming off. Nonetheless, we see demand for graphite growing at a compound annual growth rate of 13–16%.

Another thing we are questioned about at Benchmark is the use of silicon as an anode. There have been some reports in the media that silicon can be a far better anode than graphite. People have picked up on this, and it concerns them that silicon may replace graphite as an anode of choice. This is not the case — there are a number of issues with using silicon as an anode, primarily its expansion and subsequent contraction when the cell goes through charge cycles, making an all-silicon anode not commercially viable. We expect that silicon will be blended with graphite to improve its performance, but silicon will make up 5% or less of the anode.

Another debate in the industry involves the use of natural or synthetic graphite, but we see that natural graphite will increase its market share over synthetic. In terms of the actual graphite consumed, we anticipate that by 2020, more natural graphite than synthetic graphite will be used, but anodes will consist of a blend of the two, which will help battery producers get a uniform product.

One of the issues with natural graphite, as its name suggests, is that it is a natural product, so the material can vary from producer to producer, or in some cases from batch to batch. It will have slightly different characteristics when it is under stress in a cell, so blending it with some synthetic material will enable cell manufacturers to get the same result, and they can guarantee the performance of their product.

One of the main concerns — and this goes for everything to do with a lithium ion cell — is that if any of the constituent parts vary in quality or in their chemical makeup, the cell won’t perform in the same way. This might mean the cell won’t last as long. For producers that provide warranties [typically eight years] on their electric vehicles, they need to make sure every cell is going to perform in a similar way. That’s a huge concern for battery-cell makers. Blending natural and synthetic graphite gives you a uniform product.

Both products bring their own qualities. Natural graphite is cheaper, which of course is important as companies race to produce the cheapest cells, but it often performs better than synthetic. With synthetic, on the other hand, you can guarantee the consistency of the product and in many cases it proves better for cycle life. That’s why going forward we really see more blending happening in the industry.

TNM: Benchmark Minerals coined the term “battery megafactory” to refer to lithium ion battery makers. What has happened since then?

CR: When we coined the term three years ago there were two megafactories on the horizon. That number has since risen to 16 megafactories. When we say megafactory, we mean battery cell-producing facilities that have an annual capacity of greater than 1 gigawatt hour. So in that category, the total capacity in 2016 was 29 gigawatt hours. By 2020, installed capacity will be 234 gigawatt hours, and of those 16 megafactories under construction or soon to be started, 10 are in China. We don’t take into account any megafactories that don’t have capital committed. In other words, if we don’t think it will be in production by 2020, we don’t count it.

TNM: Where would Tesla’s gigafactory stand in all of this?

CR: Tesla’s installed capacity at its gigafactory in Nevada will be 35 gigawatt hours by the end of 2018. And Tesla is slightly niche in the sense that it is vertically integrated, with raw materials going in at the front end and cars coming out the other.

TNM: Can you translate “gigawatt hour” capacity into the number of electric vehicles that can be produced?

CR: When Tesla launches its Model 3, it will have a 60- to 65-kilowatt-hour pack. There will be 60 kilowatt hours in an average electric vehicle battery pack, which is made up (in some cases) of thousands of cells. An individual cell would look like the battery you would find in an iPhone or your TV remote, or it can be a bit bigger, like an old VHS cassette tape. A battery pack in an electric vehicle would be the same size as the bottom or undercarriage of the car itself.

TNM: How many electric cars could be produced from one gigawatt hour?

CR: One gigawatt hour of capacity would work out to 16,500 electric cars. Some packs are smaller and some bigger, but we work on an average of 60 kilowatt hours that the electric car industry uses to prevent what they call “range anxiety” — or how long or far an electric vehicle can run on a charge.

TNM: Does Benchmark look at nickel sulphate?

CR: We are starting to cover nickel chemicals because they are becoming more important in the electric vehicle market.

But the market for nickel sulphate is small when you compare it with the nickel market. You can’t use all nickel metal to make nickel chemicals for batteries. Nickel pig iron, for example, can’t be used to produce nickel sulphate. And there are two grades of nickel — a higher-class and a lower-class market, and only part of that higher market can go into nickel sulphate used for a battery. Other nickel would require more refining.

The nickel market is 2 million tonnes a year and the chemical market, or nickel sulphate market, is 2–3% of that, so it’s quite small.