Financial risk management, solutions and insights company Fitch Solutions Country Risk and Industry Research (Fitch Solutions) expects the demand for key battery metals to rise in the coming year as renewable energy and technology adoption continue to pick up pace.
The acceleration to a low-carbon economy in 2021 will bolster electric vehicle (EV) demand, thereby accelerating demand for essential battery metals, such as lithium, cobalt and nickel.
Fitch Solutions’ auto team forecast that Asian EV sales will expand by 23.8% in 2021, compared with 8.2% in 2020, as major economies in the region have pledged to reach carbon neutrality by 2050 (South Korea and Japan) and 2060 (China).
Likewise, EV uptake in North America is also set to quicken in the coming quarters, with the autos team forecasting both EV sales and the EV market share to double this year.
Within this context, Fitch Solutions highlighted several trends in the automotive battery metals sector to keep an eye on during 2021 and beyond, one of which is a forecast of a limited uptick in investment in mining projects for critical raw materials, especially nickel, lithium and cobalt.
“Battery metals have significantly declined over the past decade, with lithium-ion battery pack prices diminishing from over $1 100/kWh in 2010 to $137/kWh in 2020, according to BloombergNEF data,” Fitch Solutions says, noting that it expects this trend to reverse in the coming decade as EV demand outstrips supply.
Despite the Covid-19 pandemic hampering the global economy, automaker Tesla experienced a 36% year-on-year increase in sales during 2020.
Moreover, Fitch Solutions indicated that as government incentives for sustainability increase, many automotive manufacturers will enter the EV competitive landscape and compound demand, from which battery metals prices will benefit as there will be an expected lag in raw materials project development.
At current prices, the initial increase in mining investment will be inadequate to match the acceleration of demand. Furthermore, following initial discovery, Fitch Solutions said, mining projects can take on average up to seven years to reach first production, emphasizing the delayed realisation of supply gains.
“The automotive nickel market will be particularly vulnerable to supply discrepancies, as the project pipeline for class 1 nickel used in batteries is substantially low.”
In September 2020, Tesla CEO Elon Musk urged mining companies to produce more nickel, amid concerns of availability limiting the firm’s ability to scale production.
Simultaneously, Fitch Solutions is forecasting cobalt to remain an essential component from automotive battery packs, as it proves key to car performance in changing temperatures. Despite successful efforts to minimise the use of cobalt in EV battery packs, the company believes that the complete elimination of the metal remains unlikely.
Early reports on Tesla’s use of Contemporary Amperex Technology’s (CATL) lithium iron phosphate (LFP) cells are unpromising. The LFP cells are cobalt free and more cost efficient; however, Tesla’s Standard Range Model 3 vehicles produced in China (with LFPs) have experienced limited range and reduced charging capabilities due to colder temperatures. Cobalt-containing batteries are preferable owing to increased stability and reliability through temperature changes.
Furthermore, outside of China, Tesla vehicles feature a nickel/cobalt/aluminium cathode and in June 2020, the firm signed a long-term partnership with Glencore for up to 6 000 t/y of cobalt.
“As such, we expect cobalt content to remain low, but not disappear altogether.”
The use of cobalt will be further supported by increased regulation in the Democratic Republic of Congo’s (DRC’s) artisanal mining sector. In December 2020, the DRC joined the Cobalt Action Partnership which aims to end human rights abuses, such as child labour, in the cobalt supply chain.
In November 2020, Trafigura reached an agreement with the Congolese State-owned Entreprise Générale du Cobalt to finance as many as six strictly regulated artisanal mining sites. Cobalt from the artisanal sites will feature tracing, further reducing human rights risks.
Additionally, Fitch Solutions highlighted that mounting sustainability initiatives in the mining sector will contribute to increased investment in green lithium mining techniques. Despite lithium being an integral part of the clean energy transition, traditional lithium extraction techniques are far from environment-friendly.
As the sustainability trend continues to gain significant momentum in 2021, Fitch Solutions expects environmental, social and governance investment in the lithium sector to concentrate on geothermal extraction techniques.
Fitch Solutions also expects investors to prioritise greener lithium extraction in developed markets owing to increasing risks of resource nationalism in the lithium sector of emerging markets such as Mexico, for example.