Battery metals: review of 2019 price drivers and themes for 2020

• The EU cobalt metal price fell early in 2019 as a result of trader sell-off and a lack of demand from the chemical sector. Prices recovered some lost ground in August due to Glencore’s announcement of intention to put the Mutanda mine under care and maintenance by the end of the year.
• Lithium prices fell further through 2019, amid subdued demand and persistent oversupply. Prices have potentially hit a floor, with frequent mine cutbacks putting a lid on oversupply.
• Nickel sulphate prices followed the broader developments of the nickel industry, seeing a price spike after the Indonesia government confirmed its export ban on low-grade nickel ore in Q3.

Another key theme of the battery metals markets last year was the changing nature of Chinese EV sales. The Chinese EV market saw year-on-year declines for six consecutive months, putting considerable downward price pressure across all battery metals, particularly cobalt and lithium.

Eight key themes for cobalt, lithium and nickel sulphate markets in 2020

CRU’s battery metals team operates on a global basis with industrial experts in Santiago, London, Singapore, Beijing, Shanghai, Sydney and Pittsburgh. Below we pick out eight key themes that we expect will steer the market in 2020.

• Improved EV sales drives improved demand. Tesla’s Shanghai Gigafactory has started Model 3 deliveries to consumers, and other OEMs including Volkswagen will steadily roll out new EV models to the market this year. Our base case remains that we are likely to see a 20% increase in China. Several risks persist however, including the impacts of Coronavirus and a continued slowdown in China’s broader automotive market.
• Accelerate adoption of nickel-intensive cathode boosts lithium hydroxide. Following Tesla’s expansions and maturing technologies, NCM 811 will continue to gain prominence in the EV market. This is likely to accelerate lithium hydroxide demand significantly.
• Adoption of 5G handsets and new wearables to support LCO market. Although a number of barriers exist, such as elevated prices and high levels of consumer satisfaction with existing 4G services, CRU expect 5G handset adoption to continue to gather pace in 2020. Indeed, we estimate 5G handsets could account for around 10-12% of all mobile phone shipments in 2020. Most of the adoption to-date has been in China and South Korea, alongside the US and selected countries across Europe and the Middle East. The rollout of 5G services in other countries, combined with greater choices in handsets and the introduction of ‘affordable’ devices will all act to boost sales and adoption of 5G this year and throughout the forecast horizon.

• New projects will fill the gap left by Mutanda for cobalt. The mine was put into care and maintenance in December 2019, leading to 25,000 tons of cobalt contained being taken out of the market. It remains to be seen if the combined ramp-up of KCC and RTR – as well as newly committed projects like Deziwa and Pumpi – will be sufficient to keep the market well-supplied.
• Artisanal cobalt mining remains under pressure. The Congolese government has placed tighter restrictions on artisanal activity. This includes not only the introduction of artisanal mine inspections and mandatory certificates of conformity for purchasers of artisanal ore, but also the creation of a state subsidiary – the “Enterprise Generale du Cobalt “ (EGC) – will have the option to purchase all artisanal ore produced in the country. If enforced, this could limit the ability of artisanal ore to act as the swing producer in high price environments.

• New, if delayed, players enter battery grade lithium hydroxide market. Tianqi lithium’s Kwinana project phrase one could begin supplying the market in Q4 2020 after severe delays. Other companies are also trying to tap into this market, with the frontrunners being General lithium, Yahua lithium and Zhiyuan Lihtium.
• Huge raw material inventories to drag lithium market. Though we do not expect lithium prices to see further sharp falls, it could still take several months for the market to absorb excess spodumene inventories despite the production cuts announced by miners.
• First Indonesian HPAL project to commit. PT Halmahera Persada Lygend, a HPAL plant in Obi Island, aims to commission its plant in H2 2020. CRU understands that the first 850 tonne autoclave was installed at the end of 2019. Phase I will have a gross capacity of 36,000 tonne per year (t/y) nickel and 4,400 t/y cobalt. However, given the problems that have plagued HPAL plants we have assumed new production in early 2021.

Overall, we expect that 2020 will not be as tough a year for battery metals as 2019. However, significant risks remain both to the up and downside which we will be monitoring throughout the year.