Electrification and the minerals ready to rock the 2020sBrad...

Electrification and the minerals ready to rock the 2020s

Brad ThompsonReporter

They were hailed as battery minerals set to charge into the 2020s with electric vehicles while also playing a big part in keeping the lights on as power grids turned greener.But some of the so-called "minerals of the future" got ahead of themselves in the last 18 months of the decade just ended. Lithium, cobalt and graphite suffered price wobbles and suddenly the foot was off the accelerator.Lithium mining and investment in downstream processing in Western Australia stalled, Glencore idled its biggest cobalt mine in the Democratic Republic of Congo (DRC) and graphite miner Syrah Resources put the handbrake on production at the world’s biggest deposit in Mozambique.The bumpy end to the decade left investors wondering when prices for minerals like lithium, cobalt and graphite would recover.A digger gets ready to go into a mine shaft in Kawama, in the Democratic Republic of Congo.
And the struggles of those commodities prompted a closer look at nickel, copper and other minerals thought to have a bright future linked to the electrification of transport and a transition to grid-scale and behind-the-meter battery storage in power supply.Pricing puzzleThe good news is analysts still expect strong demand growth, but there are question marks around how soon and by how much prices for battery minerals will pick up.Nickel, back in favour with BHP, is seen as being in high demand through the 2020s. However, Australia’s nickel sulphide miners won’t necessarily have it all their own way as Indonesia's nickel laterite producers work closely with China on downstream processing.Lithium looks like staying in the doldrums for a year or two before a resurgence, and graphite miners have a fight on their hands as the predictable qualities of the synthetic alternative to natural flake graphite find favour with manufacturers.The outlook for cobalt is complicated by a heavy concentration of mines in the volatile DRC, expected oversupply in the next few years and a move by battery makers to reduce their dependence on the mineral.National Australia Bank head of commodity research and markets Lachlan Shaw said electrification was coming but some battery minerals had been over-hyped to date.Advertisement“The whole battery material play in Australia is great, it is fantastic, there is heaps of opportunity but let’s not get carried away,” he said.Copper clear winnerMr Shaw said there was a consensus view that copper will have an electrification renaissance.“There’s many parts of this transition that suggest copper does very well,” he said.“I certainly agree that copper demand is going to do very well from the energy transition and the electrification of transport that is coming.“We know that EVs are three to four times as copper intensive as combustion-engine vehicles. We know EVs need recharging and that is a bit more intensive in copper.Electric cars like this Tesla Model X being tested by Victoria Police use three to four times as much copper in their manufacture as conventional vehicles. “We know that solar and wind power are four to 12 times as intensive in copper per megawatt of capacity compared to coal, gas and nuclear."Copper will also be required as part of the expected heavy investment in power grids needed to cope with increasingly intermittent and distributed generation.The copper outlook helps explain why Rio Tinto has already poured more than $80 million into drilling and other work at its recent Winu discovery in WA and why South32 has just committed $US145 million ($210 million) to a joint venture in Alaska which gives it access to high-grade deposits.Lithium waiting gameMr Shaw is less bullish about lithium in the short term and thinks it could be a couple of years before the sector finds its feet and some projects are reactivated.“The lithium growth story is delayed a little bit. The next year or so is probably going to be a challenge, but I think the five-year view remains very positive,” he said."The market will need that lithium supply unquestionably based on the plans of global auto companies and also based on all of the policy settings in China and Europe encouraging the industry to shift toward EV models."Lithium’s growing pains in 2019 were illustrated by Pilbara Minerals which delayed expansion plans amid the steep plunge in spodumene prices, but then had Chinese lithium-ion battery manufacturer Contemporary Amperex Technology (CATL) emerge as one of its biggest shareholders after a $111.5 million capital raising.Wodgina, one of Australia’s biggest lithium projects, has been in care and maintenance since November when US battery metals giant Albemarle finalised a deal to hand Chris Ellison-led Mineral Resources $US1.3 billion for a controlling stake.Albemarle also scaled back plans for a lithium hydroxide plant in WA and Tianqi, Albemarle’s Chinese partner in the Greenbushes mine in the state’s south, has struggled to get its newly built hydroxide plant into commercial production.Meanwhile, Wesfarmers is pushing ahead with its plans for lithium mining and hydroxide production in partnership with Sociedad Quimica y Minera de Chile (SQM), which has Tianqi as a 24 per cent shareholder.
The WA Government had expected to pocket $749 million in lithium royalties from 2019-20 to 2022-23 but slashed that forecast by almost half in December.It said multi-billion-dollar lithium projects in WA had come under pressure as a result of lower-than-expected demand growth after Beijing cut subsidies for electric vehicles and reportedly sought consolidation in vehicle producers. Roskill, a commodities research firm, expects lithium demand to grow sharply in the 2020s, but not before some more of the short-term pain that led to the collapse of Alita Resources and its sale through administrators to Chinese interests.Roskill battery materials consultant Jake Fraser said prices for both concentrate and battery-grade carbonate and hydroxide could fall even further in the next three to six months before reaching a floor sometime in 2020.“On an operational cost basis some existing producers will be unable to remain sustainable and/or break-even at prices much lower than current levels,” he said.“This leaves no sustained recovery expected until potentially the first half of 2021.”Mr Fraser said investors needed to pay particular attention to producer cost profiles as the new decade unfolded.Roskill expects the lithium market to gain perpetual traction between 2022 and 2023. It is forecasting demand for lithium compounds alone to more than double over the next five years to 710,000 tonnes of lithium-carbonate equivalent (LCE) before reaching one million tonnes of LCE between 2027 and 2028.
Australia's lithium miners were hit by tumbling spodumene prices in 2019 when China didn't deliver the expected increase in chemical conversion capacity and tinkered with electric vehicle subsidy schemes.Mr Fraser said a two-tiered pricing market had emerged with China in oversupply while the price of battery-grade carbonate in Japan and South Korea remained above $US10,000 a tonne."Domestic market pain in China is masking a regional price differential and masking lithium's long-term potential," he said.
Nickel in demand

The boss of BHP’s born-again nickel division, Eddy Haegel, said in August that the mining giant had looked at lithium and cobalt investment options as part of a review of battery minerals and decided to pass.In the case of lithium, Mr Haegel said BHP felt there was a lot of it in the world and it would struggle over time to attract the same price premiums as nickel."It is a very widely available mineral," he said. "There will be periods of time when supply and demand don’t naturally match but we anticipate that there will be no sustainable premium in lithium. That is our view."That is not the case with nickel. We think in the medium to longer term the margin will be sticky for nickel and it is an attractive commodity."BHP Nickel West asset president Eddy Haegel has high hopes for the company's new sulphate plant. BHP is investing heavily in nickel sulphate production at its refinery south of Perth, boosting its existing mining operations, shoring up off-take agreements and in exploration.Mr Haegel has said the rate of growth in the nickel sulphate market is profound and that "we are going to be talking about millions of tonnes of sulphate in the not-too-distant future."Some of that optimism is based on figures showing 60KWh batteries driving improved electric vehicle performance need 70 kilograms of nickel compared to nine kilograms of cobalt and 11 kilograms of lithium.Australian nickel sulphide miners have been counting on their products having a big advantage over Indonesia's nickel laterite miners in the battery supply chain.However, there are doubts about a sustained rise in nickel prices on the back of the increased demand because of Chinese investment in converting laterite to sulphate product suitable for use in battery making.It is understood Glencore has formed the view that China will build the capacity it needs to convert ferronickel and nickel pig iron being produced from laterite in Indonesia and the Philippines into nickel sulphate and that these new plants will be built next door to cathode assemblers.Mr Shaw said the push for high performing, nickel-rich batteries would drive strong demand growth over the next five to 10 years.However, he said it would be a brave soul to bet against the entrepreneurial ability of the Chinese and Indonesians to produce nickel sulphate at the quality required by battery manufacturers."We (Australia) have a good nickel industry at the moment and there's opportunities to grow there but there's also plenty of nickel elsewhere that will grow as well," Mr Shaw said."The various sources of supply that we're seeing coming through at the moment certainty don't need really high nickel prices to generate commercial rates of return so I'm not 100 per cent convinced that we'll see a massive, sustained nickel price rally."We'll absolutely see that market become a lot bigger and that's going to provide a lot of opportunities for many of the listed players here in Australia."Cloudy futureMr Shaw said cobalt was seen as risky and volatile in the broader battery minerals mix.The market is expected to remain in oversupply for at least the next two or three years despite Glencore's move to shut down the Mutanda mine in the DRC.The battery supply chain is looking to reduce its dependence on cobalt and therefore its reliance on the DRC which is the source of about 60 per cent of global supply.The writing is also on the wall for graphite miners as battery manufacturers show a preference for synthetic graphite made using petroleum coke.In the longer term, the next step change in battery technology is likely to be a shift towards solid-state batteries.The key difference is that a solid polymer electrolyte replaces a liquid electrolyte but the evolution is also expected to spell the end for graphite anodes.Mr Shaw said the anode industry was already shifting away from natural flake graphite to synthetic graphite and that spelt more trouble for producers like Syrah Resources."Syrah Resources is obviously at the pointy end of those challenges. I'm afraid to say, I don't see those fortunes turning around any time soon," he said.