The battery metals bull market has peaked, according to Goldman Sachs. In its new Battery Metals watch: The end of the beginning report, it states that while battery metals – cobalt, lithium and nickel – will power the green industrial revolution, facing a wave of demand comparable to that of copper and iron ore during China’s rapid growth in the 2000s, it sees prices taking a downward trajectory over the next two years. Here are 10 key trends affecting the battery metals market.
10: Supply to exceed demand
Between 2022-25, lithium supply is set to grow on average by 33% y/y, cobalt by 14% y/y and nickel by 8% y/y against annual demand growth rates of 27%, 11% and 7%, respectively. Goldman Sachs expects Chinese lithium project expansions to multiply rapidly, in particular integrated hard rock projects, just as ex-China spodumene supply continues to strengthen. Lithium is very much in the EV driving seat over the next few years, with demand set to increase by 98% by 2025.
09: Supply capex surge impacts market
Unlike other more established commodity sub sectors where the 'revenge 'of the old economy continues to restrain supply investment, the rapid demand growth prospects from the EV sector have triggered a supply capex surge across battery metals.
Lithium is the most prominent in this trend, with expected supply growth to average just over 30% per year over 2022-25, reflecting the ramp up of new projects in Australia, China and Chile in particular.
08: Battery policy support overpowers headwinds
A strong trend of growth in EV demand will be underpinned by increasingly supportive policy globally led by Europe and China. Global battery demand is set to rise ten-fold over this decade.
The report highlights sustained policy support for the EV sector in China limiting any potential deterioration, utilising the EV transition as a key tool for decarbonisation decreasing reliance on imported hydrocarbons and accelerating the EV industry to build a greener economy.
07: NCM's edge in battery recycling
The growing emphasis on battery recycling will be an increasingly important deciding factor which favours NCM (nickel, cobalt, maganese) chemistries due to higher recycling credit relative to LFP (lithium iron phosphate), the report notes.
But LFP is on the rise. Current cost competitiveness, higher safety and a preference for small-sized EVs has resulted in a rapid rise of LFP market share in China, growing to 50% by end 2021 from just 30% in 2020.
06: Environmental risks of nickel and lithium
Lithium and nickel risks are more on the long term and linked to the environmental impact of their processes, as 30% of lithium supply is located in water-scarce countries and more than 50% of nickel production is fuelled by coal. More than 50% of brine production is located in Chile, another water scarce environment.
05: Cobalt: Shifting from deficit to balanced
A shortage of supply exacerbated by disrupted supply chains amid an unprecedented rise in global demand tightened the cobalt market into a substantive deficit last year (15kt, 11% of global supply). This year it is estimated the cobalt market will face a smaller sized deficit, reflecting the impact from auto manufacturers reducing cobalt content in their batteries as well as stronger supply trends.
04: Cobalt: a modest downward path
Unlike lithium and nickel, 95% of current smelted cobalt supply is achieved as a by-product of copper/nickel production rather than from direct cobalt supply capex. With global copper mine output peaking in H1-2024, this limits the duration of the supply driven softening path in cobalt relative to the other battery metals.
In this fundamental context, it forecasts a relatively modest downward path for standard grade cobalt prices, to average at $78,500/t in 2022 and $59,500/t in 2023.
03: Lithium demand outpaced by supply
Despite lithium's strong demand profile, Goldman Sachs sees it outpaced by strong supply trends, most notably from ex-China spodumene and China lepidolite production growth. The most significant supply additions are from China, specifically from lepidolite (mica), a hardrock lithium resource different to traditional spodumene.
It now forecasts nearly 350kt-LCE of supply additions from China to start producing by 2025E, contributing to nearly one-third of global increments over the period, and expects lithium prices to continue to correct for the rest of the year and remain under pressure from increasing supply over the next few years.
However, the oversupply and price pressure forecast will ultimately sow the seeds of the next bull market, as it will reinforce lithium’s position as the preferred raw material by battery makers.
02: Nickel fundamentals softening into 2023
The significant deficit and rapidly rising prices in the nickel market over the past 12 months have reflected a surge in battery demand, falling/low inventories and supply unpreparedness.
But it expects nickel’s near dated tightness to ultimately transition into a softer path from 2023. This reflects a strong growth trend in chemical supply as well as conversion capacity, which enables a pass through of low-purity class 2 nickel – used in stainless steel – to the high-purity class 1 nickel required for batteries.
An overwhelming 95% of EV batteries are nickel based in the US and EU.
01: Downward prices for the next two years
The report forecasts prices on a downward trajectory over the course of the next two years, with a sharp correction in lithium (spot $60,350/t versus GSe average 2022 $53,982/t and 2023 $16,372/t), and to a lesser extent cobalt (spot $87,100/t, GSe 2022 average $78,500/t and 2023 $59,500/t).
Nickel’s price profile is flatter versus spot (GSe 2022 average $31,000/t and 2023 $30,250/t), though it assumes a rally in price over the rest of this year to $36,500/t after which fundamental pressures will then drive a correction lower.
Despite the exponential demand profile, it sees the battery metals bull market as over for now.
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