A run-away expansion of the electric vehicle market is unlikely as miners struggle to meet the growing demand for lithium and cobalt.
This is according to a report by Oxford Economics, one of the world’s foremost independent global advisory firms.
In recent years, expectations that electric vehicle (EV) sales are set to rise exponentially have been high – as the automotive industry heads into a period of rapid technological change.
According to figures from LMC, pure battery-powered EV sales (excluding hybrids) increased by 67% in 2017 – helped by rapid subsidy-driven growth in China – although sales are still less than 1% of the global total.
But for the next five to ten years, there are likely to be enormous obstacles to growth from the commodities supply chain. Lithium batteries look like providing a new way forward for automotive power but for the present the demand for lithium and cobalt in particular threaten to disrupt commodities markets.
The challenge for EV battery producers is to optimise the trade-off between battery performance, safety and cost, all while building a reliable supply chain and efficient recycling systems for old batteries.
Lithium is, at least in theory, a metal that is widely available in terms of reserves. There is reckoned to be around 14 Mt of global reserves available, according to US Geological Survey data, with the vast majority located in Chile, China, Argentina and Australia. Mine production was running at 43kt/y in 2017, suggesting no immediate problem of availability.
But plans for a dramatic expansion to meet EV demand could quickly alter the story of more than adequate lithium supply. There has been a lack of investment in lithium mining in recent years, and Oxford expects the industry to struggle to meet the needs of the EV industry for the time being.
Lithium metal prices have been steadily rising from US$4,350/t in 2010 to US$9,100/t in 2017. Lithium carbonate prices have also soared, with prices reaching US$20,750/t in January this year (for material delivered to Asia) – up 34% y/y.
Major producer SQM estimates that global demand for lithium carbonate is currently around 200kt/y, but will exceed 500kt/y by 2025 and is accelerating project development in Argentina and Australia.
Cobalt and the DRC
Cobalt is another potential bottleneck for EV producers and production of this metal is likely to remain a major challenge for the next 5-10 years.
One of the difficulties is that the industry is incredibly reliant on the Democratic Republic of Congo (DRC) in Africa, which accounts for more than half of global mine production. This is a country that has high quality mineral reserves, but has a long, troubled history with international investors due to war, corruption and the forced renationalisation of assets in the copper industry in 2010.
This year more trouble may be in the pipeline from the DRC with a new mining law being threatened, which would see a dramatic increase in taxes on the industry, including a “super profits tax” of 50%.
Another problem for cobalt is that it is mainly produced as a by-product of copper and nickel, meaning that cobalt supply is very unresponsive to demand and this helps to contribute to tremendous price volatility.
The cost of cobalt has surged from around US$23,000/t at the start of 2016 to above US$77,000/t in January 2018. This is ten times the price of copper.