Battery Metal Shortages Reach Demand Destruction Levels
High metal prices rarely drive market momentum years later: they could trigger investment in new mines, increasing supply a decade from now, but the resource industry has largely retreated from this cyclical approach, burned by past behavior.
But the current sky-high battery metal prices – with lithium and nickel making the biggest gains – will impact whether people can get their hands on electric vehicles (EVs) by the end of the decade, according to analysts, and could even change the way cars are designed.
At the same time, the road is running out for automakers to get supply chains sorted for the end of the decade, given the mines’ long lead time. Shortages of battery metals would likely delay production of electric vehicles, potentially affecting the supply of new cars, as automakers largely slow development of internal combustion engine (ICE) models.
BMO Capital Markets analyst Colin Hamilton said this week that automakers should start designing for supply constraints.
“The net result could be more extreme demand adjustment, such as reducing the capacity of EV batteries in terms of kilowatt-hour capacity rather than the relentless upward push to extend range,” he said. he stated, adding that this could also be potentially balanced. by other efficiency gains such as more efficient engines and lighter cars.
This is also a short-term issue, although the redesign reaction is likely still years away.
“Tight overall supply in the upstream mining sector will keep prices relatively high for the rest of this year, despite intermittent price declines,” said Echo Ma, analyst at Rystad Energy.
Nickel and lithium prices have surged in the past six months, the latter largely due to the war in Ukraine, with Russia being a key nickel producer.
US bank Wells Fargo estimates increases in lithium carbonate and hydroxide (two forms of lithium after processing) at 470% and 700%, adding more than $3,000 (£2,388) to the cost of making a Tesla Model Y, for example.
“The trifecta of rising battery costs, tight raw material supply chains and tightening global fuel economy standards will put huge pressure on auto industry profits,” analysts said. from Wells Fargo. Last month, the bank moved to an underweight (or underperforming the market) on GM (US: GM) and Ford (US: F)while raising the lithium mining and processing giant’s target price Albermarle (US: ALB).
The bank said companies focused on electric vehicles like Tesla (US: TSLA) and Rivian (RIVN) are not much better off, given that current commodity prices will force them to either raise prices or absorb costs, which will hurt margins.
There is a gap between valuations of battery metal pre-production companies and forecasts of future demand for electric vehicles. London boards don’t offer much in terms of existing cash flow in this space: unlike iron ore and copper, the world’s top miners don’t have a primary or secondary listing at the London Stock Exchange, leaving only pre-income options for retail. investors.
We haven’t been too bullish on these companies given the risks associated with junior miners, particularly in lithium, given the precise processing requirements to bring it to battery level and recent government decisions to ‘permission.
Indeed, London shareholders appear to have dodged a bullet with Bacanora Lithium, as the Mexican government announced it would nationalize the Sonora project. President Andres Manuel Lopez Obrador recently backtracked, but that’s indicative of the challenges facing mining hopefuls, especially as current prices put dollar signs in the eyes of various governments.
Even middle finger Rio Tinto (RIO) has run into licensing issues in Serbia, where it hopes to make the Jadar underground mine a key source of lithium for European battery makers and automakers. Savanna Resources (SAV) is currently going through the licensing phase, with the Portuguese authorities having to decide whether an open-pit mine can go ahead.
Outside of Europe-focused developers, Atlantic Lithium (GER)formerly IronRidge Resources, is fairly typical of the junior mining sector moving from an iron ore and gold deposit to a lithium prospect.
But he signed an important agreement with an Australian company Piedmont Lithium (PLL) which entrusts the largest company with 50% of the Ewoyaa project in Ghana, in return for spending $102 million on the construction of the mine. This is a lot for Atlantic considering the difficulties of juniors to finance and complete new projects. The company’s market capitalization has grown from around £30m two years ago to almost £300m thanks to Ewoyaa. There are still risks, given that it has yet to deliver a pre-feasibility study (expected later this year), but Piedmont’s involvement reduces the possibility of everything collapsing.
Investment alternatives include lithium-focused ETFs, such as the L&G Battery Value-Chain UCITS ETF (BATG)which owns stakes in the major Australian lithium company Mineral Resources (AU:MIN) and Pilbara Minerals (AU:PLS). WisdomTree Battery Solutions UCITS ETF (VOLT) has more midstream companies like Umicore (BE:UMI), which sells battery-grade lithium.
The UK has promising battery metal projects, such as those at the Britishvolt and Green Lithium factories, but these are private companies.
How about no mto eat ?
A recent addition to the London Stock Exchange is Neometals (NMT), which recycles lithium-ion batteries. As more and more batteries are manufactured, its raw material increases, but recycling will not solve the supply problems of this decade.
“We expect around 10% of new battery power in 2030 to come from recycled sources and up to 50% by 2040,” said Jeremy McManus, CEO of Neometals. Neometals is building a German plant in a joint venture with major engineering firm SMS Group and has struck a deal with Mercedes to build a new recycling plant.
Recycling will also likely become an important source given the low carbon emissions involved, as automakers and other OEMs closely track their carbon footprint. Neometals – using data from Benchmark Mineral Intelligence – places lithium production and processing as the largest contributor to a battery’s CO2 footprint today. That’s no surprise, given that most lithium is currently mined in Australia and Chile and processed in China.
Geopolitics is also likely to mean that China-free supply chains will become increasingly popular, even though automakers still depend on the world’s most populous nation for a significant amount of sales and manufacturing capacity currently. . The United States is already investing government money in its national electric vehicle capabilities: “We must seize the opportunity to manufacture advanced batteries – the heart of this growing industry – right here at home,” said said US Energy Secretary Jennifer Granholm in February. The statement accompanied $2.9 billion in funding to expand battery metal processing and recycling capacity in the United States.
This could be classic bull market thinking, where high prices seem permanent until they seem impossible. For investors, London options don’t offer the access to cash flow that high copper, gold and iron ore prices have done in recent years. It might be worth throwing in a few Aim stocks just in case those in the EV supply chain become even more desperate for supply and start buying mines left, right and center.