Ken Hoffman: Lithium Market Myths, Prices and What’s Ahead

Speaking with the Investing News Network (INN) at this year’s Lithium Supply and Markets conference in Las Vegas, Ken Hoffman, basic materials expert at McKinsey & Co., talked about the myths in the lithium market, lithium prices and what’s ahead.

“I think the biggest myth that people miss is that there is not one lithium price. The lithium market will really diverge into a whole bunch of different chemistries, different levels of purity, et cetera,” Hoffman said.

“I think people need to back off from ‘it’s just a lithium overall market’ to really go down deep into the different (stages) — what are the producers selling? What are the buyers buying? — and how the match up in supply and demand for each one of those categories works.”

Hoffman, who gave a presentation during the electric vehicle (EV) briefing day, shared his thoughts on battery breakthrough technology and how it may impact the market.

“The battery technology that I think we’ll see pretty solidly for the next five to seven years is a nickel-heavy battery, nickel-manganese–cobalt (NMC) or the nickel-cobalt-aluminum (NCA) battery that Tesla (NASDAQ:TSLA) uses. That seems to be where the battery industry is going,” he said.

But things might start to get interesting after 2020, when new technology could disrupt the market.

Hoffman also shared his insight on lithium demand, which he expects to increase going forward. “In our 2030 forecast, we see demand rising from today. We’re at 220,000 metric tons (MT). Our base-case analysis says that will be about 1.3 million MT. Our aggressive-case analysis says that will be about 1.9 million MT. Either way, it’s a very significant increase,” he said.

Listen to the interview above to hear what Hoffman had to say about solid-state batteries, lithium prices and what metal to watch out for in the next few years. You can also view the transcript below.

INN: We’re here at the Lithium Supply and Markets conference. What is your main takeaway?

KH: I think it’s very exciting times for the lithium market. A lot of people here meeting investors and companies, a lot of different ideas. I think the perception that it’s going to be a good market, the EV market’s going to do very well, is quite solid. I think it’s all a matter of timing, and will there be any disrupting technologies that impact this market?

INN: As you’re saying, there’s a lot of talk about upcoming battery technologies and how they will impact the demand for raw materials going forward. What are your thoughts on that? Will the market see a different type of battery in the near future?

KH: I don’t think in the near future. I think right now the auto companies really need to plan out their battery technologies for the next three to five years. It’s pretty set. The battery technology that I think we’ll see pretty solidly for the next five to seven years is a nickel-heavy battery, NMC, or the NCA battery that Tesla uses. That seems to be where the battery industry is going. (There are) different types of that, some of them use more nickel and less cobalt. But in general that battery technology we see as being the predominant battery until we get into the 2020s. At that point, things start to get more interesting because there’s a lot of furthering of the technology that could impact the market.

INN: You’re talking about more nickel in the batteries. I guess my question is which other promising battery chemistries can take over from the lithium-ion battery for the electric car market, and in particular what is your opinion about solid-state batteries?

KH: I think at the moment we’re pretty well set in a battery that will use lithium, cobalt, nickel and probably manganese. A couple of very interesting technologies are out there in the semi-near future. For example, BASF (LSE:BASF) said at the nickel conference in Toronto recently (that) they have a battery that is very heavy in manganese rather than nickel, and could be low or no cobalt with a cost relatively half of the current material cost of today. That will be really interesting.

Solid state, I think most people agree will be the next-gen area. Solid state has a lot of benefits, including (that) it’s a lot lighter because there’s no graphite and (it’s a) smaller space. If you want to read about Samsung’s (KRX:005930) article in I think the Journal of Nature Conservancy, they really talk about — it’s a graphene-doped battery — that solid state has 45 percent more energy capacity and can last — or can be charged in under an hour and your cellphone can be under 12 minutes. That type of stuff I think is what gets people very excited about the market.

For the longest time the battery market was looking for what’s going to change to make the EV real. I think we’ve seen it now. The batteries are real. They are giving really great technology. We can see it in Tesla — I think next year we’ll have a 1,000-kilometer-range car — that it’s here to stay. It’s just a matter of evolving the technology into new and better technologies that give us faster charging and more range.

INN: Yesterday you gave a presentation about lithium myths and realities. What do you think is the biggest myth in the space?

KH: I think the biggest myth people miss is that it’s not one lithium price. The lithium market will really diverge into a whole bunch of different chemistries, different purities. From a lithium producer standpoint they have to understand, do I just make a generic lithium carbonate? Do I make a generic lithium hydroxide? But more likely you might see that each car model will have a certain type of lithium hydroxide with XYZ impurities, and those who are able to win the most automotive contracts will probably see the best margins. From that standpoint I think people need to back off from “it’s just a lithium overall market” to really go down deep into the different (stages) — What are the producers selling? What are the buyers buying? — and how the match up in supply and demand for each one of those categories works.

INN: Speaking about prices, what is your outlook for lithium carbonate and hydroxide prices going forward?

KH: Our very long-term view is that we see lithium prices in what we would call a brownfield area, and that is that prices will probably be in a range for carbonate, in the $10,000 to $14,000 range, on a very long-term basis, meaning that it won’t be the collapse that a lot of Wall Street analysts are talking about. It may not be the super high prices that the bulls are looking at. But it will be within a range that makes strong economic profits for the lower cost of lithium producers, and again, within those lithium producers you could see significant price differentials if they are producing a very high-quality material that the battery producers deem they need for that specific chemistry.

INN: Looking over to demand, many predict lithium demand will increase in the next few years. What is your forecast, and will the market see a surplus, deficit or will it remain balanced?

KH: I think it will be pretty lumpy in terms of you will have years where you’ll see significant surpluses and deficits going back and forth depending when the new material is coming online. In our 2030 forecast, we see demand rising from today. We’re at 220,000 MT. Our base-case analysis says that will be about 1.3 million MT. Our aggressive-case analysis says that will be about 1.9 million MT. Either way, it’s a very significant increase.

We’re very happy to see that the lithium industry has already responded with a lot of new capacity announcements. The devil in the details is going to be when does it come on, at what quality and will again you see … like it is in the iron ore market today where low-grade iron ore, there’s way too much capacity. High-grade iron ore, there’s way too little capacity. And yet people don’t try to look at the iron ore market as one market. I think the lithium market will be very similar and really bifurcate into a bunch of different smaller categories that we really have to analyze.

INN: In a recent report you wrote about lithium and cobalt and how supply and demand dynamics could change the future for these raw materials. What are some responses that we could expect from the mining industry based on your study? Is collaboration between miners, battery makers and financial players likely to happen?

KH: Certainly. I mean, at the end of the day, you do need a partnership among all along the value chain. At the end of the day, in order for the EV market to really explode, you’ll need a price point of under $100 per kilowatt hour for these cars to be competitive and to beat the internal combustion engine. For that to happen, the consumers need a low price with a product that fits their needs. The miners need profits, but the carmakers can’t let them have excess profits. Otherwise, as you see in cobalt prices in what we call a tale of two commodities, (you have) cobalt prices going from $10 a pound to $50 a pound. It forces those making the chemistries to try to use as little cobalt as possible. Elon Musk has said they can take all the cobalt out of the batteries, and the reason is going to simply be price. You need the best-quality battery at the lowest cost. The miners need to work with the industry to make sure that both sides are happy.

INN: Let’s talk a little bit about a metal you already mentioned, which is nickel. What is your outlook for nickel, and do you expect any challenges in the sector to be able to supply the specific nickel needed for batteries?

KH: Yes. The particular nickel grade we look at is class one nickel, which is a 99.9 percent pure LME-grade material. It’s been very interesting this year. The amount of stockpiles of nickel in LME Shanghai warehouses have dropped very significantly, by a third or so. And I think people are buying ahead a little bit, trying to see that that’s where the market’s going to go.

Most of the new money being spent in the industry is going towards a nickel-rich battery. So for example, three years ago, we talked about a NMC 1:1:1 battery, which was one-third nickel, one-third cobalt, one-third manganese. Today we’re looking at a battery in Western Europe that is 6:2:2, 60 percent nickel, 20 percent cobalt, 20 percent manganese. You are hearing more and more talk about an 8:1:1 battery, which is 80 percent nickel. If we look at Tesla, it is down to as low as 2.8 percent cobalt in its batteries. So there has been a huge push to put as much nickel into the battery as possible and take out as much cobalt as possible.

The threats could be … hearing BASF is talking about manganese, which, if we look at the size of the markets, cobalt is a 100,000 tonne or so market. Nickel, for class one nickel, is about a 1.2 million tonne market. Manganese is more than a 20 million tonne market. So producers are enamored with more plentiful materials that can be used, because then prices won’t be such a problem for them, and that’s going to be the biggest risk. First for cobalt, we’re seeing that being thrifted out. Could nickel over time also be thrifted out because manganese could come along and displace it? There’s a lot of technical challenges that we see that would have to occur for that to happen, but those are the technological risks you have to think about.

INN: My final question for you: What’s next for the battery metals market? Any other metals that could see demand increase going forward — I guess you just talked about manganese — but are there any others or any other factors investors should keep their eyes out for this year?

KH: Interesting enough, in all these batteries that we’re hearing about at this conference and elsewhere, lithium is being used in all those. So that seems to be at present the most “safe” material going into these batteries. Nickel I think is something that is short to medium term going to be very much in demand as we see the shift. (Coming to) the 2020s … we get a lot more difficulty in trying to predict the future.

I think we will have pretty much a five- to seven-year understanding of the market. The automakers take a long time to shift, and in fact I talked to an automotive executive who said that making the wrong battery choice would take a five-year timeframe for them to react, to go into the battery that was better that they didn’t choose. So I think we will be able to see pretty well the evolution of the space.

The wild card is always China. When we were in China recently, the government was talking about all (cars) coming out by 2035 being EVs, that no more internal combustion engines were to happen. If China were to switch that quickly it really would throw … a lot of our analysis on how quickly this market can move into that space. So watch China, watch the regulations in the European Union, and then from there we can back into which batteries could win and which materials will go into those batteries.

Don’t forget to follow us@INN_Resource for real-time 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 contributed article. 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.