"What we’re likely to see is strong demand that will keep prices at very, very good levels for the producers for many years into the future, and that could be decades," said BlackRock's Evy Hambro in a recent interview.
“The commodities outlook on the supply side is tight and the medium outlook for demand is incredibly strong,” he said in a Bloomberg interview. “What we’re likely to see is strong demand that will keep prices at very, very good levels for the producers for many years into the future, and that could be decades.”
As the world seeks to decarbonize, mining will be key, as the green energy transition cannot happen without key raw materials such as lithium and copper.
“It seems as though this core element of the transition has been completely ignored by many investors,” Hambro said. “At some point people will realize how essential these businesses are for the transition and capital will flow into them, and that should change the valuations.”
Battery metals are essential
In 2021, lithium prices soared to an all-time high as demand for electric vehicles (EVs) materialized in key markets such as Europe and the US. Lithium is a key element in EV batteries.
“Lithium was a relatively boring commodity that people didn’t have much focus on and now is front page news,” Hambro said. “One thing is certain: the chemistry we have today for many applications is going to change and that’s going to result in different dynamics of supply and demand.”
The Investing News Network (INN) recently caught up with analysts covering the battery metals market. Here’s what to watch out for this year:
Benchmark Mineral Intelligence is forecasting a lithium market deficit this year, which could impact output from the EV industry. “We expect growth in supply to be outpaced by demand growth in 2022, which should provide beneficial pricing to the majority of current lithium producers,” analyst George Miller said.
After surprising to the upside, cobalt prices are expected to remain strong in 2022, according to Harry Fisher of CRU Group. “The upward trend is likely to slow as some new supply comes online to bring the market closer to balance relative to 2021, and relieve some tightness,” he said. “However, ongoing supply chain and container shipping constraints may maintain market tightness and see prices move higher.”
Even though graphite doesn’t get the attention that raw materials used in cathodes do, many investors have turned their attention to this key element in anodes for lithium-ion batteries.
Looking ahead at how overall demand for graphite will perform, Benchmark Mineral Intelligence expects the battery segment to challenge industrial applications as the leading end market for graphite demand. Over the next decade, anode demand will grow at an average compound annual growth rate of 27 percent.
“Unlike some of the other critical mineral markets, there is still time for both the natural and synthetic graphite market deficits to be redressed — so long as adequate funding is provided for junior miners in the near term,” Miller told INN in a conversation about what's next for the industry.
Aside from lithium, cobalt and graphite, other battery metals could also see interest rise from investors, including energy-storage-driven vanadium. Are you just joining the battery metals space? Here’s a good starting point.
Base metals also key for green energy transition
In 2021, copper prices broke the US$10,000 per tonne mark to reach their highest level ever at above US$10,700.
“You cannot do this transition without copper,” Hambro said. “We are seeing huge amounts of demand for copper … with that there's a need for more supply and we are seeing challenges to bring that supply into the future.”
As 2021 came to a close and 2022 kicked off, INN also reached out to analysts covering the base metals market. Here’s what to watch out for in 2022:
In 2022 and 2023, Commodity Markets Analytics expects copper to be in a modest surplus helped by ample mine supply growth, with inventory levels likely to remain low.
Similarly, Refinitiv is looking for a surplus in 2022. “But moderately so, such that the impact on prices will not be that marked, and more a time to pause for breath ahead of the anticipated substantial tightening from the middle of the decade,'' analyst Karen Norton said. “Prices are likely to remain high enough to incentivize new projects.”
Nickel is another key material used in EV cathodes, but it is important for investors to keep in mind that, despite the future demand expected from batteries, stainless steel remains the main driver of nickel demand and will continue to be key for the market into 2022.
Overall, CRU expects to see steady demand in 2022. “We don't see a deficit. We do see a relatively balanced market,” CRU’s Marta Dec said. Wood Mackenzie also expects to see a balanced market for 2022 currently, with the risk of oversupply depending on the growth of new capacity in Indonesia.
If you are a new investor or need a refresher on the base metals basics, check out this report.
Don’t forget to follow us @INN_Resource for real-time news updates!
Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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