Much of the discourse around batteries has been about the supply gaps expected in many of the key battery metals. Where do you see some of the biggest deficits in supply in the coming years and what are the risks? Are there any solutions that you see emerging in this space?
Vinit Lakhani: When we say battery supply chains, it evokes different emotions based on which industry you’re a part of. I’m a trader, but I’ll try to keep it more holistic overall.
The battery supply chain is not new. In the last three to five years, we’ve seen massive growth in the electric vehicle (EV) and energy storage industry which is now talking about deficits. Nobody talked about deficits in lithium five years ago.
In terms of deficits based on the current structure of battery minerals, I think the more dominant battery chemistries are LFP (lithium-iron-phosphate) and NMC (nickel-manganese-cobalt). Of course, sodium-ion is also there, but there’s still some time before that becomes mainstream. Based on the prevalent chemistries, I think lithium’s going to be in very short supply. While we see a lot of money going into the lithium ecosystem (from mining to processing) and making battery cell packs, I think about 80 – 90% of lithium processing capacity is sitting in China now.
The whole world, particularly the Western world, is trying hard to deploy capital, time, effort, and resources into setting up refining capacities ex-China. I see a big gap in investment on the resourcing side because, unlike factories, processing plants, and refineries, it takes a number of years to set up a mine. It’s not easy. It takes time to get licences, map out reserves, and get the mine sequence right. Logistics will be a big challenge, particularly if you are looking at hard rock, whether that’s Australia or Africa.
While all the money is chasing the midstream, I foresee in the next three to five years there will be a big gap on the resourcing side, because the investment into actual hard rock mining is probably not going to keep pace with the development of midstream capabilities.
Yue Jer Lee: What a lot of people are saying, is that there’s plenty of lithium in the world, and that is true; but lithium in economic extractable quantities within the timeline that we need it, that’s not necessarily readily abundant.
There is another metal that we are quite interested in, and that’s silver. Right now, solar panels account for about 18% of world silver production and solar capacity is doubling, even tripling in the next few years. Not 10 years, but two to three years.
Solar panels constructed today actually use more silver than previous generations. We’re likely to see a mini lithium event in silver, where one industry suddenly takes up half or even more of the global available supply. And silver is produced mostly as a byproduct from gold and copper mines, or lead and zinc mines. Scalability is difficult, while demand growth is huge. That’s where we see the deficit.
Sing Yang Chiam: 10 years ago, when I went into battery R&D, it was all about developing cobalt-free cathodes. That seems to be less acute now, especially with the introduction of the high nickel content cathodes, but then nickel became an issue. During COVID, lithium was quite expensive. It came down a bit, but that drove the research for sodium-based batteries. In terms of R&D, we look at the trends of where the mining industry is going because that provides a possibility of abundance.
Besides the raw material itself, the processing of the chemicals is very important. If you look at NMC cathodes, for example, very high-grade lithium hydroxide is key to make quality cathodes. Not only where you mine it, but where you process it is very important for the battery material side.
Leah Chen: Our analytics team has actually forecast a surplus in critical minerals like lithium, nickel, and cobalt; especially this year. With all the ramp-ups in Indonesia, this year’s surplus for nickel is amounting to 199,000t. And for lithium it’s about 60,000t. For cobalt it’s less, at about 8,000t.
We estimate cobalt will be the first to hit a deficit around 2026 by about 5,000t. Next will be lithium, around 2027.
I totally agree that lithium is in the most precarious position, because it is used in every single type of lithium-ion battery. Whereas cobalt and nickel are mainly used in nickel-rich formats, for example NMC and NCA (nickel-cobalt-aluminum oxide) batteries.
Nickel is what gives the energy density for an EV to drive a longer range, but higher nickel also results in battery instability. So, within the Chinese domestic market, they prefer LFP batteries, which don’t use any nickel or cobalt. China’s LFP battery market share is close to 60 to 70%, whereas for NMC it’s just 20 or 30% this year. I believe that the changing battery chemistry dynamics will also be one of the factors that affect where demand for these critical minerals will go in future.
Let’s go a bit deeper into different possibilities within the battery space and what that means for the metals outlook.
Leah Chen: I’ll give two examples. One will be increasing manganese content in batteries. Even though nickel provides the energy density, it also makes the battery cell unstable. So, some of the Chinese manufacturers believe that by increasing the manganese content in the battery it provides stability, but also slightly increases the energy density. We also see, for example, manganese being put into LFP. LMFP batteries are already being manufactured in China.
Another trend that we see is sodium-ion battery technology gaining traction this year. We have CATL and BYD looking towards producing sodium-ion batteries. Even though many people feel that sodium-ion may pose a challenge to the lithium-ion battery, I’m more of the view that it will complement the industry.
Manufacturers prefer the sodium-ion battery because sodium is widely abundant. In terms of production last year, sodium carbonate is at around 58Mt, whereas the entire production of lithium is at 0.7Mt. You can see the vast difference in terms of production and cost. Sodium carbonate averaged around US$175 while lithium was around US$45,000 average for all of last year.
Because sodium-ion is larger, some feel that it may not be suitable for portable charging devices. Most people are of the view that sodium-ion is more suited for energy storage applications. There will be a bit of a niche market for sodium, but it may not necessarily compete with the EV industry.
Sing Yang Chiam: The question is, what kind of performance do you need for a mass market car, and that’s where the line starts to shift between LFP and NMC. That’s why we see the eroding market size for NMC. Of course, you have pack level improvements for LFP which also helps.
If you look at the conventional stabilized cathode chemistries for sodium-ion batteries, they have low energy densities, about 100 or less kilowatt-hour per kg. On that basis, I think the entry point for this would be micro-mobilities, which include e-bikes, e-scooters, and low-range cars. It is not a competition for performance, high-capacity batteries.
Yue Jer Lee: It’s becoming clearer in the sense that automakers want a car that has a very long battery life and sufficient (but not maximal) performance. LFP batteries have about 2,000 to 3,000 cycles versus NMCs which have 800 to 1,200. That’s one major downside of NMC batteries.
Do consumers really need maximum acceleration when they use the cars in big cities? I don’t think so. An LFP battery has more than enough acceleration for city use. Range-wise, they’re almost comparable, plus/minus maybe 100km.
CATL just announced its battery can reach a capacity of 400km in a 10 minute charge. If you can pop your LFP battery EV into a petrol kiosk, get it topped up to 300, 400km range in 10-15 minutes, almost about the same time it would take to fill up a petrol car, you have no more charging anxiety. If you can get to that range in 10 minutes it eliminates range anxiety.
Vinit Lakhani: Time will tell which is going to be the more prevalent battery chemistry, but people are projecting that the EV and storage industry is going to grow by 30, 40, 50%. If you split this growth, some of that is going to be attributed towards NMC, LFP, and sodium-ions, but all of these will contribute to this massive 30 to 50% growth in the EV and energy storage space.
On the anode side, the only dominant metal is graphite. China has massive control in natural graphite, maybe more than lithium, and there’s a significant amount of investment going into synthetic graphite as well.
We always look at the front of the supply chain – the manufacturing and technology, but what about after the battery cells degrade and you need to dispose of them. Is there value downstream after the car?
Sing Yang Chiam: In the recycling space itself, we look at two possibilities. One is repurposing and one is recycling. We are still trying to see whether repurposing will play a big role globally and there are plenty of reasons for that. There’re competing chemistries that are coming on cheaper and better. You’re competing with a product that’s 10 years old.
The recycling space is very interesting. You already have technologies that you can recycle by extracting the key minerals. The issue with recycling is not whether you can extract the minerals, but at what cost? It’s at what CO2 footprint? Currently, if you look at hydrometallurgy, I think the CO2 footprint is good. The cost may be high, but you can still make a bit of money from it, from what I understand. But, this is for the cobalt-based chemistry.
The LFP chemistry is harder to make money from. There are reports of plants opening up looking at that chemistry but so far, I think that remains challenging.
Vinit Lakhani: The circularity of batteries has been going around for a while, particularly in the lead-acid battery space. It’s a pretty established industry globally, though it’s a bit polluting. I personally know about a dozen lithium-ion battery recycling startups and everyone claims to have super-efficient hydrometallurgy and pyrometallurgy.
I foresee that in three to five years, there will be dozens of recycling companies and each will have very good deals. Some will be able to extract lithium more beneficially, some will be able to extract cobalt or nickel salts more beneficially. There will be enough industry there, but the bottleneck will be the availability of feed. It will still take another five, 10 years, or more, to have the feed necessary so that the recycled products become mainstream, meaning they become a significant portion of the overall lithium ecosystem.
Metals like aluminum and copper have been around for centuries, and at least 70 or 80% of aluminum ever produced is still in the ecosystem because it can be recycled an infinite number of times. For a new thing like a lithium-ion battery to get to that stage, it’ll take decades. But that’s where the feed becomes more important, and I think in some years’ time, this will become more geopolitical. Countries will not want this feed to be exported. Not just countries, even car makers will probably incentivize consumers to give back the whole battery so that they can be recycled.
This is an evolving industry, it’s extremely exciting, but it’ll take a lot of time for us to get to that stage where it forms a major portion of any battery mineral ecosystem.
Any predictions on what that future balance between new metals versus recycled metals will be to fill that battery ecosystem?
Sing Yang Chiam: If you look at recent European battery regulations, that hints at what they expect. It was around 10% of recycled content in terms of these minerals by 2030.
Leah Chen: We have a sister company, S&P Mobility, who recently did research into this. The company’s forecast is that by 2030, close to 40% of the cobalt supply will come from recycled materials. That percentage is lower for lithium and nickel, at about 10 to 15%, partly because of feedstock.
Looking at a 10% potential for recycled materials also means that we need a significant amount of new metals entering the space. Exploration is one of the keys to ensuring that EVs will grow in market share. Where do you see the financing coming from and what types of projects do you see it going into?
Yue Jer Lee: There are plenty of sources out there right now, given how cashed up some companies in the industry are. Last year, we went through a period of high lithium prices and we are seeing lithium companies sit on billions of dollars of cash.
I see a lot of financing potential, new money is likely to come from outside the industry in adjacent producer companies.
There’s a lot of money right now going into processing, refining, and even consuming in battery manufacturers. A lot of government money funded by the IRA, the Europe Critical Resource Minerals Act, etc., are moving into the downstream segments.
Upstream, not a lot of money has gone in, partly because of political pressure. But then we see car makers like GM putting US$650M into Lithium Americas. And other car makers like Ford tying up with battery plants and signing long-term offtake contracts with mines. These offtake contracts are not just pure offtake, they come with US$50, US$100M of cash, up front.
I really hope that traders take a more active role in investing into this space, particularly now with the IRA, there’s so much of capital that’s available, it takes somebody to take the next step
Vinit Lakhani: I see more non-traditional sources of financing coming into this space. Traditional sources of financing, like banks, will shy away from these investments, whether it’s a lithium mine or refinery, because typical project finance risks and mitigants doesn’t work in this kind of structure. All we are seeing is that the banks are financing the EV makers or the battery makers who, in turn, are injecting capital into these projects. It’s indirect, implied bank money going into this system.
Other than that, on the upstream side, I see only miners looking at these things. Again, it’s been more new miners rather than traditional miners. The only real announcements I’ve seen in the last two to three months, is Rio making an announcement about a very small project in Rwanda and Glencore making a similar announcement for an early-stage lithium project in the DRC.
I really hope that traders take a more active role in investing into this space, particularly now with the IRA, there’s so much of capital that’s available, it takes somebody to take the next step.
Looking at the impact of government regulations in terms of the battery space and supply chain, how much is this impacting where money goes and who’s able to invest?
Leah Chen: When the Inflation Reduction Act (IRA) rolled out in August last year, I had never before seen another country putting US$500B of tax credit into in the energy transition.
Our analytics team have forecast that demand for critical minerals like lithium, nickel, and cobalt will increase by 23 times going into 2035, compared to pre-IRA in 2021. 23% growth in demand is crazy, because before the IRA was announced, the forecasted demand was only a 15% increase.
There are also some limitations because of how the IRA is constructed. They want the supply chain to be based in the US, or through trade flows with free-trade agreement (FTA) countries. But, the thing is, a lot of these critical minerals are not from FTA countries. This year the US imported 44% of its lithium from Argentina. And Argentina is a non-FTA country. The US also imports from Chile, which has a longstanding trade relationship with China.
Sing Yang Chiam: The IRA injects a lot of capital into the battery cell manufacturing space, not only to localize its supply chains, but also to look at cell manufacturing within the US. Talking to some US companies, this really helped them. Some companies are looking at the Asia Pacific region to set up not only the R&D, but also satellite space in battery cells manufacturing.
Yue Jer Lee: We first have to view the IRA as a political tool rather than an economic tool. Its main aim is to move the supply chain away from China, out of Chinese aligned supply chains and countries, towards the Western block. They’re trying to create a parallel supply chain to the one that’s already working.
The economic side means having two supply chains, a new one running against an established, low cost, low capital intensity one. The new one is high CapEx intensity and high cost to run. Not to mention the higher cost of input because they mostly import the raw materials anyway.
If the US tries to freeze Chinese products out of major markets, then we are going to see a duplication of demand from these Western factories on top of what’s already in China. I don’t see an end game to this.
Vinit Lakhani: Given the different conditions in the IRA, which is going into processing rather than actual investment in resourcing, there are not as many resources in the US as in other countries. That’s the reality of it. Either you have resources, or you don’t, and the places where you have resources, people have issues about human rights, traceability, and sustainability. So, that is always going to be a challenge.
What would you encapsulate for this industry as the biggest risk that people should keep top of mind moving forward?
Vinit Lakhani: There is a big risk that we will be sitting with a huge processing capacity but not enough resource to feed it. I think there’s going to be a big gap. Hard rock is going to take its own time: three, five, seven years. It’s anyone’s guess how long it takes to start a mine depending on the jurisdiction and the nature of the reserve.
The real technological sweet spot is brine, there are new technologies like direct lithium extraction (DLE), which can change the game. They can completely make a new curve when it comes to the availability of lithium carbonate units, which is going to be more in demand compared to lithium hydroxide. If more companies deploy DLE technologies and there’s more advanced work done, that can bridge the gap to some extent, particularly in Latin America in new brine fields rather than hard rock. Hard rock will still be prevalent because it gives the volume, but it will take a lot more time to come on stream.
Leah Chen: Realistically speaking, it takes more than 10 years for a mine to come online, all the way from scoping, feasibility studies, construction, and to actual production. So, all the mines that are being invested in right now will only come online towards the end of the decade.
Sing Yang Chiam: When the feedstock is low and demand is high, this disproportionate case of whether recycled content can supply cells will be a problem. If the demand is expected to pick up, then you’ll see a very high influx of feedstock.
At that point in time, recycled content could be a competition for mined content, especially in terms of costs, carbon footprint, and for people pursuing circularity. Regulations will play a big role in this.
Yue Jer Lee: Repurposing should come well ahead of recycling. Batteries that are used in cars, especially the new lithium-ion batteries, are far from being dead at the end of 10 years. They can be repurposed into energy storage systems, stationary storage, and I believe they should go there first.
There’s a lot of money going into the processing, but at the same time, because it’s a highly capital intensive and competitive industry, there’s going to be a lot of competition. Margins are likely to be squeezed. These are the two areas that I think are highly risky. In a gold rush, you don’t try to be the one that finds the gold. Sell the pickaxes to the people rushing after the gold. As investors, I think the better place to start would be selling the pickaxes, and that’s the lithium, nickel, and other mines that produce the raw materials that feed into this gold rush.
Panellists:
Vinit Lakhani, Head of Base Metals, Minerals, Tata International Limited
Yue Jer Lee, Director, Arcane Capital Advisors
Sing Yang Chia, Director, Singapore Battery Consortium
Leah Chen, Editor, Non-Ferrous Metals, S&P Global Platts
