By: Ritoban Sengupta -- Principal Analyst
13 September, 2021
The dawn of a new era is expected to herald a change in the automobile industry, with electric cars expected to rule the roost and the gradual phasing out of diesel and petrol-powered cars is now becoming a stark reality. Even though this is partly being triggered by ensuing government mandates and protocols, a growing global consciousness surrounding a greener and cleaner pollution-free environment is also at the forefront.
Electric vehicle makers have started adopting strategies whereby they are entering into deals with mining companies to smoothen the supply-stream of metals utilized in batteries to tackle the escalating demand for these types of vehicles. Diverse types of metals are utilized in car batteries like nickel, cobalt, lithium, etc. As a result, in a reverse scenario, even big mining conglomerates like BHP and Rio Tinto are looking to explore these sectors and tap into metal reserves of nickel, cobalt and lithium.
Tesla and BHP
Tesla entered into a nickel-supply deal with BHP Group to address challenges related to sustainable sourcing. BHP is expected to supply nickel to Tesla from it’s Nickel West Asset in Western Australia, which features among the most sustainable and lowest carbon emission nickel producers around the world. BHP and Tesla Inc. will also act on coming up with methods to make the battery supply-chain more sustainable with enhanced focus on end-to-end raw material traceability utilizing blockchain and technical exchange for raw materials production. BHP is also expected to partner with Tesla Inc. on energy storage solutions to zero in on opportunities to reduce carbon emissions in their respective operations (1).
Pensana PLC Purifying Metals in Britain
Pensana PLC (in the mining and metals space) is building a plant to purify the metals in Britain, utilizing the UK government’s automotive transformation fund, which renders grants to trigger the transition to net zero vehicle supply chain. The Saltend plant incurred lower capital expenditure and operating costs compared to other sites in Europe. Pensana has thus far generated £15 million through an equity raise for the $125 million plant, which will create approximately 100 jobs (2).
Miners Building Independent Supply Chains
With the demand for electric vehicles accelerating, small scale mining companies are looking to build capacity and reserves of lithium, cobalt, etc., used to manufacture batteries. Europe and the US are looking to design robust and independent supply chains for key metals used in electric vehicles to reduce over reliance on China (2).
Many countries are also looking to source these raw metals (for making EVs) from low cost destinations, and then, processing them into battery parts. President, Joe Biden, has outlined this strategy in an endeavor to help companies achieve economies of scale, while producing these electric vehicles. Recycling of electric vehicle batteries is another strategy being looked at by battery manufacturers in light of government fueled incentives and upcoming regulations (3).
Lithium prices have witnessed an uptick in the recent times, with LCE prices on the spot market, increasing above USD 12,000 per ton, more than double the rates witnessed in November 2020. This steep increase has led to companies looking to build new capacity and reserves. However, with long-term deals having been struck toward the end of 2020 for low contract prices, it has acted as an impediment to any new investment. With companies in many industries striking long-term deals to avail of economies of scale, it is expected to lead to shortage toward the end of the decade.
Demand for cobalt is expected to increase to 270,000 tons by 2030 from 141,000 tons in 2020. Cobalt demand from electric vehicles is expected to make up for more than 120,000 tons, or approximately 45 percent of the total, by 2025 compared to nearly 39,000 tons, or 27 percent, in 2020. This is expected to lead to a massive shortfall. However, with cobalt being only a by-product, Indonesia's high pressure acid leach (HPAL) projects will help to bridge some of the gaps in supply and demand.
Supply of nickel is at an all-time high, and this trend is expected to continue throughout the mid-2020s. With leading Chinese Nickel Pig Iron (NPI) producer, Tsingshan Holding Group, converting NPI into matte, utilized to make chemicals for batteries, and Indonesia's High Pressure Acid Leach (HPAL) projects to produce between 400,000 and 600,000 tons of nickel a year for much of this decade, the global supply of nickel is forecasted to be approximately 2.6 million tons in 2021. Two-thirds of this will be utilized by stainless steel mills, while approximately 10 percent will filter down to electric vehicles. With their being a surplus in supply, prices are expected to remain steady and stabilize in the long run to consolidate the stable nature of the market (4).
There will be an escalating demand for lithium from other end-user industries, like Energy Storage Systems (ESS), 5G devices, and Internet of Things (IoT) infrastructure.
Samsung SDI and Glencore, a commodity trading and mining company, has announced an important five-year agreement for the supply of cobalt hydroxide for lithium-ion batteries. Between 2020 and 2024, Glencore is expected to provide up to 21,000 tons of cobalt contained in cobalt hydroxide (5).
Impact on Procurement: Most mining companies typically ink long term deals with EV and mobile/consumer electronics companies. These deals typically include low contract prices and help shoring up reserves for future. Other end user industries, like glasses, ceramics, pharmaceuticals, etc., might bear the brunt of this shortfall of lithium in the long run. During 2021 2025, supplies from current and planned projects are expected to meet demand. However, from 2025, new supply sources should come online to meet the escalating demand.
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