What to watch in the battery raw material markets: Five takeaways for the next decade

The second episode of the Fast Forward podcast delves into the dynamic landscape of battery raw materials (BRMs) and explores key factors impacting lithium, graphite, nickel and other critical minerals. Our speakers also touch on regulation and supply chain challenges, battery chemistry trends and the global electric vehicle (EV) markets.

Hosted by Andrea Hotter, the episode features Paul Lusty, head of battery raw materials research at Fastmarkets.

The key points covered in the discussion include:

• State of the lithium market
• Outlook for global EV sales and the rise of plug-in hybrid electric vehicles
• Latest EV battery chemistry trends and preferences
• Challenges in decreasing reliance on Chinese supply chains
• Factors to keep a close eye on in the BRM markets

What is the state of the lithium market?

The lithium markets experienced a major price rally in late 2022, followed by a correction in 2023 that resulted in an 80% drop in lithium prices. This downturn has prompted producers to cut costs and delay investments, particularly affecting supply chain development outside China.

While the lithium market currently lacks direction, we are beginning to see positive signals that could lead to price increases in the coming months:

• Strengthened spodumene prices: Spodumene prices have increased by 40% from the 800-900 per tonne range seen in February, which is expected to support chemical salt prices later in the year
• New Chinese automotive policy: The Chinese government has introduced a policy to boost consumption in China which led to a rally in Chinese lithium futures prices
• Increased battery installations in China: Battery installations in March 2024 resulted in a 70% increase month-on-month and a 40% increase year-on-year
• Destocking cycle coming to an end: Analysis shows that since the price fall of 2023, Chinese producers have de-stocked around 70,000 tons of lithium carbonate equivalent. This trend cannot continue indefinitely and consumers will eventually need to return to the market for new materials

The lithium market is expected to mature with time, resulting in increased liquidity, more suppliers and diverse sources. As the market stabilizes, demand fluctuations will have less impact on prices and volatility should decrease over the next five to ten years.

What is the outlook for EV sales?

EV sales growth rates have slowed since the exceptional growth rates of 2021 and 2022, dropping to a 36% year-on-year growth rate in 2023 from over 100% back in 2021.

Some commentators suggest the EV market is losing momentum, but Fastmarkets believes it will continue to grow steadily at a more sustainable year-on-year growth rate over the next decade.

The current market trends reflect various regional and country-specific challenges:

• Countries with high EV penetration, like China and Norway, are seeing slower growth due to market saturation, but China’s robust charging infrastructure combined with affordable EVs are likely to continue to drive consumer adoption
• Sales in Europe and the US have fallen short of expectations, largely due to interest rates impacting vehicle financing and consumer buying decisions
• The Asia Pacific region is experiencing exceptional growth, particularly in emerging economies like Thailand, which saw nearly 500% year-on-year growth recently, powered by strong government policies and incentives

Plug-in hybrid electric vehicle (PHEV) sales have been rising at a stronger rate than full EVs in the US and China. In China, market saturation in major cities and the lack of established EV charging infrastructure in rural areas are making PHEVs a more practical choice. In the US, PHEVs appeal to buyers hesitant to switch to fully electric cars due to range anxiety and a preference for long-distance travel.

What are the latest EV battery chemistry trends?

NCM (nickel cobalt manganese) chemistries have seen a resurgence in the past year, particularly for NCM 622 and NCM 523 as a result of lower BRM prices. LFP (lithium iron phosphate) demand has also increased.

LMFP (lithium manganese iron phosphate) has recently been included in Fastmarkets’ chemistry forecast due to rapid advancements in LMFP cell production and commitments from original equipment manufacturers (OEMs) to use this chemistry. We are anticipating LMFP to capture 17% of the passenger EV market by 2034.

Sodium-ion batteries, similar to LFP, arrived on the scene due to high lithium prices in 2022. Given the low lithium prices right now, there is little incentive for commercializing sodium-ion technology and it is predicted to capture only 4% of the battery market by 2034.

In terms of energy storage, solid-state batteries are generating interest due to their potential for significant advancements in range and charging times. Recent announcements, like Toyota’s claims of 750 miles range and 10-minute fast charging, highlight their promise. However, there are still significant technical and manufacturing challenges to address before they can be widely commercialized.

What are the challenges in reducing dependency on Chinese supply chains?

There are many policy and regulatory efforts to regionalize supply chains, such as the Inflation Reduction Act (IRA) aimed at onshoring and clean energy investment in the US, the push for Chinese de-investment from lithium projects in Canada and the establishment of the National Security Investment Act in the UK.

In terms of markets, graphite is a great example that exemplifies the challenges in moving away from Chinese supply chains. With the US regulations for critical minerals coming into effect in 2025, no EVs will qualify for the 30D tax credits under the foreign entity of concern (FEOC) definition, since nearly all natural anodes are produced or processed in China.

Another example of this is nickel. Indonesia’s dominant nickel market, backed by the Chinese steel industry and investments, faces compliance challenges with FEOC guidelines. Over 25% Chinese ownership in major projects and the lack of a US free trade agreement affect its eligibility for new EV tax credits under the IRA.

There will be significant challenges in reducing reliance on China due to its established dominance in this space. Policymakers need to understand that building economic capacity and resilience takes time.

What should BRM market participants watch for in the next decade?

1. The impact of the low-price environment on BRM supply

This is expected to cause BRM supply challenges by the late 2020s, leading to deficits in the next decade. The weak market sentiment is discouraging investment and essential project development, which could hinder the establishment of supply chains outside of China.

2. China’s response to the low-price environment

China remains poised to dominate global EV and battery production, posing risks to US and European automotive industries. It may move to support financially challenged projects or invest in underfunded areas like Africa and South America.

3. Battery recycling and the circular economy

This will significantly impact the BRM industry in the next decade. Regulations focused on minimum recycled content and supply chain performance will drive increased use of recycled materials in batteries.

4. Green premiums and other pricing mechanisms

The industry should anticipate the emergence of pricing mechanisms for green or low-carbon materials in BRM markets in the coming years. These mechanisms may include regional premiums tied to regulatory compliance, such as the IRA.

The post What to watch in the battery raw material markets: Five takeaways for the next decade appeared first on Fastmarkets.