Electric dreams turn into nightmare for battery metals: Andy Home

LONDON (Reuters) – It has been a brutal year for the battery metals business.

Lithium, nickel and cobalt prices fell in 2023 and continued to decline through 2024.

A sector that was once racing to create new supply is closing mines and postponing projects as low prices impact the cost curve.

The road to an electric future has turned out to be tougher than expected with demand from the all-important electric vehicle (EV) sector falling short of expectations.

It is also a story of massive oversupply with too much new capacity brought online at exactly the wrong time.

And it will be supply discipline, or the lack of it, that will determine whether there will be any price recovery in 2025.

EV narrative lost track

The global EV market is still expanding.

November was another record-breaking month with sales of 1.8 million units, according to consultancy Rho Motion. Global sales growth in the first 11 months was an impressive 25% compared to 2023.

But the positive headlines hide two unpleasant truths for the battery metals sector.

China is still the main driver of the EV revolution, while Western markets are struggling to keep pace.

While Chinese sales set a new monthly record in November, sales in the United States and Canada were up just 10% year-over-year in November and sales in Europe were actually down.

Western consumers still need incentives to switch from internal combustion engines to electric motors. German new-energy vehicle sales have plunged this year after subsidies were suddenly removed at the end of 2023.

US subsidies could reduce next year if Donald Trump follows through on his threat to roll back the Biden administration’s EV policy.

The second reality check is that many EV buyers, especially in the important Chinese market, are opting for hybrids or plug-in-hybrids rather than battery electric vehicles.

These have about one third the size of batteries used in pure battery models, meaning the lack of uniform size in all metal cathode inputs.

Some of the demand for lithium is offset by the growing market share of lithium-iron-phosphate (LFP) batteries, which accounted for two-thirds of all EV sales in China last year, according to the International Energy Agency.

LFP batteries are cheaper than nickel-rich chemistries and Chinese battery manufacturers have improved their performance to such an extent that CATL’s latest Shenxing Plus model claims a single-charge driving range of over 1,000 kilometres.

However, these are bad news for nickel, cobalt and manganese markets.

The amount of lithium deployed on the road in new EV sales was about 48,000 metric tons in October, up 28% year-on-year, according to consultancy Adamas Intelligence.

However, nickel, manganese and cobalt deployments increased by 10%, 4% and 2% respectively, reflecting both the shift to hybrids and the changing battery chemistry mix.

Lower than expected demand from the EV sector, particularly outside China, coincides with an increase in supply across the battery metal spectrum.

BHP’s Nickel West was considered the miners’ showcase green metal hub. It was shut down in October due to low prices due to mass production in Indonesia.

Chinese nickel producers have made the technological leap to process Indonesia’s relatively low-grade ore into high-purity Class I metal. According to Macquarie Bank, combined Sino-Indonesian output will grow 30% this year.

At least Indonesian authorities have shown signs of imposing supply discipline, limiting mining quotas and freezing the approval of new processing plants.

China’s CMOC Group, the world’s largest cobalt producer, is unimpressed by the price surge. It recorded production of 84,700 tonnes in January-September, up from 37,000 tonnes in the year-ago period.

The level of oversupply in the cobalt market is so large that Chinese stockpile managers are able to accumulate significant tonnage without any apparent market impact.

Chinese lithium producers are also protesting production cuts. Many are vertically integrated, meaning losses in the ground can be offset by profits further up the processing chain.

Lithium supply is expected to exceed demand for the third consecutive year in 2025, even given the steep decline in prices among Western operators, according to consultancy Benchmark Mineral Intelligence.

The supply problem should decline from nearly 10% last year to less than 1% of demand, which should limit further weakness in prices.

Supply surpluses in the nickel and cobalt markets, by contrast, risk becoming structural unless production more closely aligns with demand.

Given such negative supply-demand dynamics, it’s not hard to see why the analysts’ consensus is for more producer price pain in the coming months.

China is a major player in all three markets and shows no signs of giving up on its electricity dreams.

However, it is a point of increasing tension with the United States.

The final report from the Critical Minerals Policy Group, which is part of a select committee on US-Chinese relations, accused Chinese lithium producers of driving down prices “through a mix of dumping and overproduction”.

China, the report said, “uses price controls, vertical integration and substantial barriers to entry to stifle competition”.

Joe Biden and Donald Trump may disagree on electric vehicles, but there is remarkable bipartisan consensus on the need to build domestic battery metal capacity and loosen China’s grip on global supply chains.

Trump 2.0 is likely to result from a combination of increased federal spending by the Biden administration and tariffs on Chinese metals.

US trade policy will add another important role to the already complex battery metals market dynamics.

In fact, if US tariff walls are built high enough, there is a risk that the global market will begin to split into Chinese and US pricing zones.

The opinions expressed here are those of the Reuters columnist author.

(Editing by Kirsten Donovan)