Australia Battery Metals Update: Q3 2022 in Review

Australia battery metals market: Prices remain high, EV sales up

Q1 was strong for battery metals, with lithium and cobalt seeing healthy price environments throughout the period.

Since then, lithium has remained stable at high levels, with prices increasing more than 123 percent year-to-date, according to Benchmark Mineral Intelligence data. Cobalt prices have retreated from the peaks seen earlier in 2022, but are now steady.

The main demand driver for lithium and cobalt is the EV industry; sales reached all-time highs in 2021, and are on track to post another record year in 2022. Furthermore, the Office of the Chief Economist believes metals central to the global energy transition — including copper, nickel and lithium — will earn AU$33 billion in 2022/2023, double what they earned in 2020/2021.

In Australia, the key barrier to transport electrification today is the low supply of EV models, the country's Electric Vehicle Council said in a recent report. “To catch up to the rest of the world, Australia must introduce a robust and ambitious fuel efficiency standard to provide consumers with greater choice in EV models, reduce fuel bills, and reduce emissions,” the report reads.

In 2021, sales in the country tripled from the previous year to reach 20,665 EVs sold, up from just 6,900 in 2020. This increase represents a 2 percent market share of global sales, compared to 0.78 percent in 2020, according to the Electric Vehicle Council.

So far in 2022, the market share for EVs has increased by 65 percent to 3.39 percent of new light vehicle car sales.

Australia battery metals market: Lithium market still tight

With demand for battery metals expected to remain strong throughout the coming decades, all eyes are on where the supply to meet the needs of the growing EV industry will come from.

In its October budget, the federal government outlines plans to invest AU$50.5 million over the next four years to establish the Australian Critical Minerals Research and Development Hub. It will also allocate AU$50 million over three years to the Critical Minerals Development Program; these funds will go to competitive grants for early and mid-stage critical minerals projects.

Australia hosts the world’s largest lithium mine, Greenbushes, and is also home to key producers, including Pilbara Minerals (ASX:PLS,OTC Pink:PILBF) and Mineral Resources (ASX:MRL,OTC Pink:MALRF). The country’s lithium production is expected to increase in 2022 as further capacity comes on stream.

In October, Perth-based Pilbara Minerals said its production for the first quarter was 147,105 dry metric tonnes (dmt) of spodumene concentrate — a 16 percent increase from the previous three month period. During the period, its Ngungaju plant reached nameplate capacity of 180,000 to 200,000 dmt per year.

“In response to increasing customer demand and strong lithium raw materials pricing, the company has continued to adjust production by lowering its targeted product grade to optimise product yield, thereby maximising sales volumes to take advantage of current market pricing conditions,” the company said in a statement.

Mineral Resources, in a joint venture with Ganfeng Lithium (OTC Pink:GNENF,SZSE:002460), saw Mount Marion’s production reach lower levels compared to the previous quarter. That was due to continued mining of lower-grade transitional ore and plant shutdowns associated with the expansion of output capacity to 900,000 tonnes per year.

“Mt Marion remains on track to achieve financial year 2023 guidance for spodumene concentrate shipped — set at 300-330,000 dmt,” said Mineral Resources, which owns a 51 percent share in the mine.

Meanwhile, the company's Wodgina asset, which it’s developing in partnership with another top producer, Albemarle (NYSE:ALB), shipped 26,000 dmt of spodumene concentrate over the quarter.

When looking at what’s impacting the lithium sector, one catalyst to keep an eye on is how quickly spodumene producers, which are targeting a capacity ramp up by the end of the year, are able to achieve their ambitions, Daisy Jennings-Gray of Benchmark Mineral Intelligence told INN. “The lithium market facing further supply delays could drive upward pricing sentiment.”

In terms of demand, the last quarter of the year is typically the strongest period for EV sales in China, and with the subsidies set to end on January 1, 2023, automakers are already picking up production rates to improve sales figures ahead of this.

For that reason, Jennings-Gray sees demand from battery manufacturers and cathode producers picking up significantly. "On the flip side, it does seem traditional industries are shrinking slightly, but given how tight supply is, it’s looking like any additional relief this could provide on the demand side will have minimal impact, with any extra material snapped up by the battery sector.”

Australia battery metals market: Cobalt prices find support

Cobalt, another key battery metal, also experienced a spike in prices in 2021, doubling in value on the back of surging demand for EVs. Similar to lithium, prices stabilised in the second quarter of the year, but the long-term prospects for the metal remain firm.

During the third quarter, cobalt prices were steady despite strong Chinese EV and battery production, given large inventories of raw material accumulated throughout 2022, Cameron Hughes of Benchmark Mineral Intelligence told INN.

Prices found support in late August due to perceived tightness in the US superalloy market and robust alloy grade demand, according to Benchmark Mineral Intelligence data.

“This provided upward momentum for metal prices, which subsequently supported sulphate and hydroxide prices,” Hughes said. “As this tightness subsided in September, prices stabilised throughout the month.”

Australia is the third largest cobalt-producing country, behind Russia and leading producer the Democratic Republic of Congo (DRC). In 2022, CRU Group forecasts that mined supply will increase by over 42,000 tonnes, up 26 percent year-on-year.

“There will be limited risk to supply-side fundamentals in Q4 as strong cobalt production throughout 2022, especially in the DRC, along with limited demand, has pushed the cobalt market into a significant surplus this year,” Hughes said.

In Australia, four cobalt-producing companies are currently operational: Glencore (LSE:GLEN,OTC Pink:GLCNF), BHP (ASX:BHP,LSE:BHP,NYSE:BHP), First Quantum Minerals (TSX:FM,OTC Pink:FQVLF) and IGO (ASX:IGO,OTC Pink:IPDGF), with Glencore being the dominant producer in the Australian market and the only company producing refined material. Moreover, there are a few cobalt companies developing cobalt projects that could help supply the battery market.

“There is expected to be significant growth in consumption, especially for cobalt chemicals, driven by growth in the battery sector and increased EV manufacturing,” according to an OCE report. “Mined cobalt production is expected to more than double by 2030 to meet the increase in demand, however this will require significant additional mine capacity to come online over that period.”

Australia battery metals market: What’s on the horizon?

As the next three months of the calendar year unfold, investors interested in the battery metals market in Australia are wondering what might be ahead for the sector. When it comes to lithium, prices are expected to continue to show strength as demand outstrips supply in the foreseeable future, with some experts believing the peak in prices is yet to be seen.

“Total supply from mine and brine operations is currently insufficient to meet demand. While new lithium projects are being developed, the supply gap will take time to close,” the Office of the Chief Economist states in its latest report. “Ongoing tight supply conditions are forcing lithium processors and battery makers to pay record prices.”

This year, prices for spodumene are forecast to rise to an average US$2,730 a tonne, up from around US$598 in 2021, while lithium hydroxide is expected to rise from US$17,370 a tonne in 2021 to US$38,575 in 2022.

In terms of Australia’s lithium production, output is projected to grow at 20 percent per year. Production is expected to rise from 247,000 tonnes of lithium carbonate equivalent in 2020/2021 to 387,000 tonnes of lithium carbonate equivalent in 2022/2023, growing to 469,000 tonnes tonnes in 2023/2024.

Meanwhile, Australia’s spodumene concentrate exports are forecast to lift from 2.3 million tonnes in 2021/2022 to 3.2 million tonnes in 2023/2024. The Office of the Chief Economist anticipates that output from lithium hydroxide refineries will steadily add to companies' earnings, with total annual lithium export revenue hitting an expected US$12.9 billion by the 2023/2024 period.

For cobalt, prices are expected to stabilise over the coming weeks, according to Jack Bedder of Project Blue.

“(We also expect) rising demand to gradually work through inventories and incentivise more output,” Bedder said.

For Hughes, the major trend to look out for in Q4 is a significant uptick in Chinese EV sales given the government will stop providing subsidies at the end of 2022.

“Although many customers will purchase vehicles in Q4, they will not receive them until a later date; despite this they will still be eligible for the subsidies,” Hughes said. “Therefore, Chinese EV sales in Q4 will be especially high.”