Skyrocketing prices for battery metals could put a dent in the runaway growth of the electric vehicle sector, and there are doubts supply will be able to meet demand in the short-term.

The London-based S&P Global Platts Analytics says that with lithium prices more than tripling since August last year, and cobalt and nickel up 90 per cent and 35 per cent respectively, it’s a looming issue for the sector.

Platts, a ratings and business data organisation, says that monthly global plug-in EV sales more than tripled in the past year, with 480,000 units moved in July and China and western Europe dominating sales.

“Nevertheless, EV sales are sensitive to cost increases in some regions (particularly the US), where a 5 per cent increase in energy storage costs (batteries) translates to approximately a 10 per cent reduction in plug-in EV sales in the US in 2022,’’ Platts says.

“We’ve seen a bullish past year for commodity prices, and metals have been no exception, but the demand for battery metals has skyrocketed due to the surging EV market and tightness in supply, and prices have reflected that demand,” said Scott Yarham, associate director, pricing, metals at S&P Global Platts.

“Demand for all battery metals has increased substantially, but lithium has increased most significantly due to surging demand coupled with a significant supply constraint from global mining and development projects.”

Fellow analyst Mike McCafferty said stalled spodumene and lithium-brine projects last year led to a supply shortfall this year, “and workforce challenges due to Covid only add to the supply risks”.

“With a resurgence in Covid cases due to the Delta variant, we expect some lithium projects will face continued hurdles throughout the rest of the year, either to come online and start production, or to ramp up existing production sufficiently to better balance market demand in the short-term.”

The Pilgangoora lithium mine near Port Hedland in Western Australia. Demand for all battery metals has increased substantially, but lithium has increased most significantly. Picture: Colin Murty
The Pilgangoora lithium mine near Port Hedland in Western Australia. Demand for all battery metals has increased substantially, but lithium has increased most significantly. Picture: Colin Murty

The ramp-up in metals prices has translated into a sharp rise in costs for nickel, manganese and cobalt-based batteries, and with lithium-iron phosphate batteries carving out a larger share of the automotive market, those batteries are likely to spike also.

Analysts at UBS agree that a crunch is coming, saying the UBS Autos team is “more confident than ever in a steep EV penetration curve’’.

“Twenty per cent market share by 2025, 50 per cent by 2030 (previously 40 per cent), with a chance of 100 per cent by 2040 (previously 80 per cent),’’ UBS says in a recent report.

These numbers translate into the need for battery cell supply to increase 22-fold over the next decade, and an 11-fold increase in lithium demand.

“Can supply keep pace with demand? We don’t think so,’’ UBS says.

“The short-run supply-demand balance will be dictated by the restart and ramp-up of several key projects, some of which had been deferred as a result of weak market conditions that were exacerbated by Covid-19, and is reflective in the strong performance in prices year to date across spodumene and lithium compounds.

“In the medium to long-term, we think supply will be challenged to keep up with the steep increase in demand as driven by our EV growth forecasts, and we see a deficit in overall supply appearing past 2024 that cannot be solved when considering our base case supply view.

“Further, we believe that supply of the high-purity grade compounds that are required for battery production is even scarcer and face additional challenges in coming to market.’’

Australian listed companies which are exposed to the lithium price have run up well in response to the increases over the past year.

Core Lithium, which last month made a final investment decision on its fully-funded Finniss spodumene project near Darwin, has delivered about an eight-times return for shareholders over the past 12 months.

Western Australia-focused Pilbara Minerals is now valued at $5.8bn after increasing from 35c to $1.97 over the past year.

The company, led by Ken Brinsden, last week announced commissioning of the Ngungaju Plant at its Pilgangoora project 120km from Port Hedland had started. The Ngungaju Plant is expected to ramp up to 180,000-200,000 tonnes of spodumene concentrate production by the middle of next year.

“With market conditions remaining extremely buoyant and the spodumene concentrate market continuing to show signs of being extremely short of supply, the Ngungaju Plant is expected to be capable of delivering uncommitted tonnes into the emerging spot market,’’ Mr Brinsden said.

Liontown Resources, which is demerging its non-lithium exploration assets into a separate vehicle, has risen from 22c to $1.43 over the past year.

Extracted in full from: Battery boom could hit the brakes on electric vehicles (