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Key EV markets to start growing again – WoodMac

28th January 2020

By: Creamer Media Reporter

     

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Following a year characterised largely by disappointing performances from the electric vehicle (EV) and consumer electronics sectors, better days are ahead for battery market participants, with key markets for electric cars set to start growing again.

This is according to consultancy firm Wood Mackenzie (WoodMac), which notes that interest around electrification shows “no signs of slowing”.

“The value chain of a new ‘green’ automotive industry is being built, from mines and refineries through to cell and pack manufacturing. It’s still early days but investments and deals made in the coming months will be critical to EV adoption potential over the next decade.”

WoodMac says that the contraction of EV markets in China and the US in 2019, shows that EVs are not yet ready to stand on their own feet, but it notes that these markets are poised to start growing again this year.

Several major automotive manufacturers are launching ‘mass-market’ EVs on dedicated platforms, aimed at breaking down range and cost barriers.

China’s move to postpone the complete removal of new energy vehicle subsidies this year will support EV sales, but also highlights how sensitive the EV market is to subsidies and incentives.

In a report detailing five key developments to look out for in battery raw materials this year, WoodMac notes that batteries will become “bigger and better”, with China having started its first large-scale production of NMC 811 cells to be used in the automotive sector.

As cobalt prices soared in 2018, the push towards high-nickel, low-cobalt batteries was accelerated. This year, only a handful of EV models outside China are expected to opt for the high-energy density technology until the safety challenges are fully resolved.

“Within China, 2020 could be the year that lithium-ion phosphate (LFP) chemistries get a comeback as significant energy density improvements make LFP a much more viable option.”

Mindful of consumer concerns around range, automotive manufacturers are opting for bigger batteries, offering more kilometres per charge and WoodMac notes that the trend of bigger batteries should continue over the short term.

Turning to lithium, which in an oversupplied market had a particularly weak year in 2019, the research firm says that it does not expect any tightness in the market in the short term, despite several closures and expansion cuts last year.

Nearly every lithium price fell by at least 30% and reported sales prices followed the same trend. WoodMac expects price decline to extend over the next 12 months.

Spodumene prices are not forecast to recover this year, which will put junior miners under pressure to emphasise their green credentials and strategic locations. Low brine prices may not weigh as heavily on the brine producers, which are typically sitting at the bottom of the cost curve and having produced at these levels before.

For cobalt, the research firm questions how the gap that industry-leader Glencore’s suspension of its Mutanda mine left, will be filled. Mutanda, in the Democratic Republic of Congo (DRC), is the world’s largest cobalt producing mine and Glencore suspended operations last year, citing weak pricing and higher operating costs.

Mutanda’s suspension will put more pressure on Glencore’s other DRC operation, Katanga. The mine has been dealing with quality issues related to uranium content over the last year, but WoodMac notes that interim solutions appear to be bearing fruit.

“We estimate around 5 000 t of cobalt in hydroxide may have been exported last year, versus production of 14 000 t. Glencore is currently targeting production of 27 000 t of cobalt in hydroxide in 2020 from Katanga – with export levels dependent on the continued successful implementation of de-bottlenecking schemes.”

Besides Glencore, the most likely source of ‘replacement’ tonnes is Eurasian Resources Group. Its Metalkol RTR plant, in the DRC, got off to a slow start last year, and is estimated to have exported only about 3 400 t last year, compared with its capacity of 14 000 t.

WoodMac estimates that RTR will have to “at least double” shipments in 2020 to avoid a large deficit. Other major players such as China Molybdenum Company’s Tenke Fungurume look unlikely to be able to materially increase output, while new supply from Chengtun and the recently started Deziwa operation will also be required to meet demand growth.  

“While we do have a notional deficit of some 2 000 t forecast this year, we expect this is necessary to further draw down the stocks that have accumulated through the cobalt value chain. We believe price risk is on the upside this year should the ‘major producers’ fail to ramp up, and higher prices are required to incentivize higher cost supply into the market.”

Meanwhile, while lithium and cobalt have suffered from the slowdown in EV sales in the Chinese market, for graphite – a one-million-tonne-plus industry driven by the steel sector – the fundamentals are more complex.

WoodMac states that the ramp up in exports from Syrah Resources’ Balama mine, in Mozambique, gradually overwhelmed the previously insulated Chinese flake market and eroded price levels as the year progressed. The extent of the oversupply eventually saw Syrah trim its own output in the final quarter, and its guidance for 2020 for 120 000 t to 150 000 t.

“As 2020 gets under way, there are many questions associated with the flake market. For a start, does the natural graphite industry even need a mine as large as Balama right now – which at full capacity (350 000 t/y) would be larger than current global consumption of natural graphite in batteries? And is there a future for the other flake graphite projects looking to move into production in this environment – particularly given a seeming resurgence in interest in synthetic graphite?

“Medium-term demand prospects for graphite remain strong, with disruptive technologies like silicon or even lithium metal-based anodes unlikely to dampen growth anytime soon. However, with this fledgling sector already overwhelmed with supply, 2020 looks likely to be another challenging year. With margins being squeezed, and an increasing focus on sustainability encouraging ex-China sourcing, many graphite miners, including Syrah, will continue to move down the value chain towards high-purity spherical graphite.”

Edited by Creamer Media Reporter

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