Cobalt Firms into Battery Favouritism

COMMODITY CAPERS: Try striking up a conversation about lithium-ion batteries without cobalt eventually featuring.

The reason is simple, cobalt contributes up to 60 per cent of the value of lithium-ion batteries, which in turn accounts for 42 per cent of demand for cobalt.

Cobalt’s other main use at 16% is in superalloys which compliments the battery demand as high-tech industry grows.

Therefore, there is little surprise that cobalt represents similar percentages of any discussion of lithium-ion batteries, electric vehicles (EVs) and all the other electronic paraphernalia that rules our modern world.

We have spoken in previous articles on how the lithium-ion battery is projected to become the world’s most significant source of power with their use in EVs being a key driver.

Bloomberg forecasts 35 per cent of vehicles sold by 2040 will be electric.

Those of us who remember the seventies know that isn’t far away and the fact that currently only one per cent of global car sales are EVs means they will be an omnipotent presence on our roads sooner rather than later.

One only has to recall how cool it was to have been the first kid in class to own a Casio digital watch to understand.

The number crunchers have determined cobalt demand is expected to rise at five per cent compound annual growth rate (CAGR) over the next four years.

Cobalt has been something of a poorer cousin in recent commodity terms, especially when compared to the battery markets eponymous metal, lithium.

Lithium kicked off all the excitement – and it took a long time to take off as crusty old exploration company executives struggled to come to the realisation that gold, iron ore, and uranium may have been losing the appeal, and importance, they once exerted over the rest.

Cobalt is expected to have a supply deficit as currently mining is only just meeting demand.

This has been reflected in a rise in the cobalt price which Deloitte, in its recent WA Index March 2018, said had,” increased by 1.4 per cent to US$81,000 per tonne as a beneficiary of bullish global demand for lithium.”

Deloitte claimed that electronics giant, Apple had been the subject of reports suggesting it was, “Entering into talks to secure long-term supplies of cobalt directly from cobalt miners amid fears of a looming shortage attributable to what has been coined the electric vehicle boom, has seen the metal’s price increase across February.”

The current price is heading in the right way, but it is still shy of the heady days of 2008 when it was sitting at US$52/lb (US$115,000/t), which was coincidently, also the last time global supplies of cobalt were in deficit.

The reason global cobalt supply is as tight as it is stems from approximately 98 per cent of the world’s supply being produced as a by-product of copper and nickel production with 15 mines representing half of the world’s supply.

Not only does this make supply tight, it also exposes it to any supply stream disruption, such as the shutdown of copper mining in the Katanga Province in the Democratic Republic of Congo (DRC) slicing off three per cent of cobalt supply.

Sixty per cent of global production comes from the DRC, which has a reputation as a politically unstable country and is thought by many to be somewhat unethical in its approach to the mining industry.

In the Fraser Institute Survey of Mining Companies, 2017, DRC was rated amongst the bottom ten jurisdiction in the world for investment according to the survey’s Policy Perception Index (PPI), a composite index that measures the overall policy attractiveness of the 91 jurisdictions in the survey.

That means the good corporate citizens of the world are looking elsewhere for their cobalt supplies to produce ethically-cleansed products for their equally ethically-minded customer base.

At the recent RIU Explorers conference, Patersons senior resources analyst Simon Tonkin declared cobalt as being the best performing commodity over the past 12 months.

“Cobalt is a critical metal in terms of lithium-ion batteries and it is very difficult to secure supply,” he said.

Tonkin suggested there was potential for the demand for cobalt to double by 2022 and that by 2030 some estimates are for 47 times the current cobalt demand.

“Australia has the second largest cobalt reserves in the world, he said.

“Hopefully we can look to exploit that position.”



Old Campaigners on Standby for EV Revolution

COMMODITY CAPERS: Some analysts suggest that EV sales will be responsible for around 25 per cent, and more, of total vehicle sales by the end of 2035 from the current levels of around one per cent.

Coming off a relatively low base the projected growth could have a significant effect on markets for certain commodities.

Nickel and copper are two traditional commodities that have found the running comfortable with the upsurge in interest for battery metals.

Although lithium and cobalt have been sneaking away with the bulk of the headlines, nickel and copper are also integral parts of the lithium-ion battery make-up, and as such are enjoying some new-found fame.

In his presentation to the 2018 RIU Explorers Conference, ANZ senior commodity strategist Daniel Hynes said investors have woken up to the impact lithium-ion batteries have had on these two markets.

“Environmental issues have evolved from being secondary policy targets to one of the top priorities for many countries over the past few years,” Hynes said.

“Certainly, China has been quite important in driving this dynamic over the past few years and clearly all the headlines have been focused on sectors such as the Electric Vehicle market and what that can do for commodity demand.

“No-one really knows the level of adoption that the market place will take.

“That certainly has been a big reason behind the rebound of nickel prices, even though the volumes are going to be relatively low.

“It is interesting to note the differences in the amounts of copper used in a conventional car as opposed to a battery EV.

“Essentially nine times the amount of copper is used.

“The dynamics are quite strong, and we do expect to see the markets turning.”

Currently, the EV/ lithium-ion battery chatter is creating a strong global market interest for nickel, which is receiving support, albeit in the short-term by higher stainless-steel production.

Australian mine production is expected to fall to 176,000 tonnes in 2017–18 before recovering slightly to 183,000 tonnes in 2018–19 while the country’s nickel export earnings are expected to fall slightly to $2.1 billion in 2017–18, before rebounding to $2.3 billion in 2018–19.

In a metals&ROCK research note released in April, Morgan Stanley noted that the main driver to global nickel demand to be, “any change in the level of activity in China’s stainless steel industry”.

Seventy per cent of the world’s primary nickel supply is gobbled up by Chinese smelters as they produce 54 per cent of the world’s total 46 million tonnes of stainless steel.

“And so far in 2017, China’s SS-output rate’s up (+23 per cent year-on-year, Jan-Feb),” Morgan Stanley reported.

“Roughly in line with the general lift in output of its +820 million tonnes per annum carbon-steel industry – buoyed by Q1’s credit surge, and a central government sponsored infrastructure program.”

The Department of Industry, Innovation and Science noted a recent rise in nickel prices attributing markets factoring in growing demand linked to lithium-ion batteries, however it also said that it was not clear that the immediate boost to prices will persist.

“Although sales of electric vehicles are rising sharply, at this stage, batteries still account for a small share of nickel sales, and stainless steel is still estimated to account for around two-thirds of nickel consumption over the outlook period,” the department said in its December Quarter Resources and Energy Quarterly.

Although copper does have a part to play in the EV revolution, currently it is its older stomping grounds that are contributing to its recent positive run.

Source: DIIS

DIIS cited the London Metal Exchange (LME) copper price estimate to have averaged US$6,810 a tonne in the December quarter, the highest level since September quarter 2014.

Credit for this rise was given to growth in global industrial production and several supply disruptions, including incidents at KGHM’s Glogow smelter in Poland and Rio Tinto’s Garfield operations in the US.

Although copper inventories on the major global exchanges fell by 6.4 per cent quarter on quarter, contributing to higher prices in the December quarter these are expected to wane in 2018 with the LME copper price forecast to average US$6,340 a tonne as supplies increase.

A pick up in consumption over supply has forecasters predicting a rise in copper prices to US$6,490 a tonne in 2019.

“Global copper consumption is forecast to rise from 24 million tonnes in 2017 to 25 million tonnes in 2019, representing an average increase of 3.2 per cent each year,” DIIS said.

“Higher copper consumption will be supported by firm growth in global industrial production and higher investment in energy infrastructure.

“Emerging economies are expected to drive much of the growth in copper consumption over the next two years.”

China is expected to lead this copper consumptive period.

The country already accounts for around 50 per cent of global demand and looks to increase that number as it makes improvements to the nation’s power grid and enjoys further growth in the construction and manufacturing sectors.

The coming shortfall will kick in once global demand for electric cars and renewable energy takes off, leading to stronger growth in copper consumption over the next two years.

“Increased global production of electric vehicles…is expected to raise copper consumption by around 300,000 tonnes annually in 2018 and 2019,” DIIS said.

“Copper is used extensively in renewable energy technology and infrastructure, spending on which is expected to increase strongly over the outlook period.

“Global electricity capacity from renewable sources is expected to increase by 4.4 per cent annually over the outlook period.”



Electric Vehicles Driving Nouveau Commodity Rush

COMMODITY CAPERS: While scientists debate whether climate change is a real/false, natural/man-made phenomenon, countries with large populations have realised opening a window does not necessarily provide its people with fresh air.

Keeping people breathing has become a major concern for the larger countries, China is the first that comes to mind.

It’s extremely rare to see vision of a Chinese populace going about their daily routines without seeing high numbers wearing face masks to minimise the effects of the air pollution the country endures.

But the Hidden Kingdom is not alone as many European and North American centres also move to diminish the effects of long-term air pollution.

Electric Vehicles (EVs) have become the touchstone of the new environmental times and are expected to dominate the market sooner, rather than later, due mainly lower costs for battery manufacturing and commitments from car companies to establish themselves as market leaders.

In its Electric Vehicle Outlook 2017 report, Bloomberg New Energy Finance noted just how quickly EVs will start to dominate the global car market.

“By 2040, 54 per cent of new car sales and 33 per cent of the global car fleet will be electric,” Bloomberg said.

“Falling battery prices will bring price-competitive electric vehicles to all major light-duty vehicle segments before 2030, ushering in a period of strong growth for electric powertrain vehicles.

“While EV sales to 2025 will remain relatively low, we expect an inflection point in adoption between 2025 and 2030, as EVs become economical on an unsubsidized total cost of ownership basis across mass-market vehicle classes.”

Green politicians may have struggled to capture voter attention of late, but the green economy is running at a much faster pace.

Speaking at the recent 2018 RIU Explorers Conference in Fremantle, Patersons senior resources analyst Simon Tonkin said the Green economy has been a key driver for resources over the past 12 months.

Tonkin went all the way back to 2014, when, he said, China announced it wanted to reduce pollution and it wanted 20 per cent of its energy needs to come from renewables by 2030.

“China’s energy needs are currently around 13 per cent renewables, but it is amazing how much China is building in terms of the world’s solar panels,” he said.

“It is installing two-thirds of the world’s solar panels and around half of the world’s wind turbines.

“There are currently 3.5 million clean-energy jobs in China and this is expected to grow to 10 million jobs by 2020.”

Like the Chinese, it didn’t take Tonkin long to set his sights on the EV and associated lithium-ion battery market, where he indicated technology was gaining traction, noting that Tesla, and others, are currently building giga-factories.

“There is a shift to new-age metals, such as lithium, nickel, cobalt, manganese and graphite – we could also add vanadium and zinc into the mix,” he said.

“Australia has plenty of these metals to supply to the world.”

According to Tonkin, the best performing commodities over the past 12 months is dominated by the battery metals of cobalt and lithium with those trailing the pack being the sector stalwarts of iron ore, silver, and gold.

The importance of lithium batteries to modern living has increased with their use in such high-demand devices, such as phones and computers and the growing EV market.

A lithium-ion battery lives in a category of itself with around four diverse types of batteries in use, utilising a mixture of commodities, including aluminium, cobalt, manganese, graphite and nickel

Demand for these commodities is expected to increase exponentially over the next ten years to meet the increased demand for batteries and EVs towards 2030

“Our (Patersons’) view on lithium with the emergence of electric vehicles, we are going to see a significant increase for lithium demand as soon as the mid-2020s,” Tonkin said.

“However, in the short-term we could see supply outstrip demand as the spodumene producers ramp up.”

Tonkin is not alone in his view of a possible lithium glut.

In its recent report – Lithium: The long-term pain of new supply, Morgan Stanley suggested that should the current pipeline of planned projects goes ahead the result will be substantial, and sustained, market surpluses from 2019 onwards.

“We forecast 2018 to be the last year of global lithium market deficit,” Morgan Stanley analysts said.

“Beyond that, we expect global lithium prices to correct as the market moves into a period of sustained surplus.”

Morgan Stanley noted that the Chilean Economic Development Agency (Corfo) has granted additional production quota to SQM.

Another lithium producer, Albemarle also requested an uplift to its quota for production from La Negra in late2017.

The analysts have forecast these expansions to add 200,000 tonnes per annum to Chile’s lithium output by 2025, bringing the country’s total output to 255,000 tonnes LCE – a third of global supply.

“We’ve also increased our supply forecasts for Australia and Argentina,” Morgan Stanley said.

“Combined we forecast cumulative supply growth of 3.9 million tonnes from 2019-2025 (vs. our previous estimate of 2.9 million tonnes supply additions, a change of +35 per cent).”

Although lithium powerhouse SQM intends to increase lithium production by four to six times, it is likely to take years to eventuate and will come at a much higher cost than current production, possibly making it less competitive.

Australia has the third largest lithium reserves behind that of China and Chile – a position the country is starting to exploit with production coming on line from companies such as Pilbara Minerals and Pioneer Resources as well as lithium extraction technology plays such as Lithium Australia and Neometals.