Cobalt Critical to Lithium-ion Battery Chemical Mix

- February 27th, 2018

Cathode formula changes will not disrupt cobalt’s prominence in the electric vehicle revolution and lithium-ion battery chemical mix.

Skyrocketing prices for cobalt and lithium have led Asia’s top battery makers to consider adjusting the formula for lithium-ion batteries used in electric vehicles (EVs) by swapping a portion of the cobalt for more nickel.

However, industry experts say the world’s leading auto manufacturers’ aggressive plans to expand their electric vehicle offerings in the face of unstable access to cobalt supply is likely to offset any negative impact this might have on the market.

Cobalt fundamental to EV battery chemistry

Cobalt prices have risen nearly 280 percent from their low point in February 2016 to hit an eye-popping US$82,000 per tonne as of February 15, 2018.

The rising price of cobalt — and lithium — has directly impacted battery cell pricing for tier-one cell manufacturers on the order of 8 to 12 percent, Benchmark Mineral Intelligence analyst Caspar Rawles told the Investing News Network.

Spurred by the dramatically rising price of battery materials, some large-scale cell manufacturers have begun to study alternative cathode formulas that use more nickel and less cobalt. The standard recipe for the preferred nickel-manganese-cobalt (NMC) lithium-ion batteries consists of 60 percent nickel, 20 percent manganese and 20 percent cobalt. But South Korea’s SK Innovation (KRX:096770), for example, has said its goal is to change up that 6:2:2 ratio in the cathode composition to 8:1:1 in an “[effort] to respond to changing market conditions.”

Similarly, Beijing Easpring Material Technology (SZSE:300073) in China is looking to disrupt cathode composition with strategic partnerships with Clean TeQ Holdings (ASX:CLQ,TSX:CLQ) on its Sunrise nickel-cobalt project and Global Energy Metals (TSXV:GEMC,FWB:5GE1) with its assets in Australia and Canada.

Cathode, cell and EV manufacturers are keen on reducing the cost of the cells, but reducing the amount of cobalt in each cell and increasing nickel isn’t the easiest answer. “There are still a number of engineering challenges that will need to be overcome in order to be able to use high-nickel/low-cobalt formats for EVs,” Rawles pointed out. “Whilst there is a big push to move towards NCM 811, the technology still needs to be developed and then rigorously tested to be able to be deployed on a mass scale. This will take time and the transition to the technology will be relatively slow.”

And it seems cobalt is so essential for optimal performance that it isn’t likely to disappear from the lithium-ion battery story anytime soon. “If you increase the nickel proportion, you reduce the stability of the battery and so it has an impact on cycle life, the ability to charge it fast,” according to Umicore Chief Executive Marc Grynberg. “Cobalt is the element that makes up for the lack of stability of nickel. There isn’t a better element than nickel to increase energy density, and there isn’t a better element than cobalt to make the stuff stable. So [while] you hear about designing out cobalt, this is not going to happen in the next three decades. It simply doesn’t work.”

Rawles said Benchmark expects the cobalt market to see continued significant growth as increasing sales volume for EVs will negate any decrease in the average density of cobalt in battery cells.

“To put that into numbers, we see the average cobalt content across all cobalt-containing lithium-ion cathodes (LCO, NCM and NCA) decreasing by 60 percent from 2017 levels by 2025; at the same time, the demand for cobalt from lithium-ion batteries will grow nearly three times,” he explained.

This INNspired Article is brought to you by:

Global Energy Metals Corporation (TSXV:GEMC) is focused on offering security of supply of cobalt, a critical material to the growing rechargeable battery market, by building a diversified global portfolio of cobalt assets including project stakes, projects and other supply sources.Send me an Investor Kit

Electric vehicle revolution has begun

The EV revolution is advancing quickly, with giant automakers including Ford (NYSE:F), Volkswagen (ETR:VOW3) and Toyota (NYSE:TM) planning to roll out massive numbers of electrified vehicles in the coming years. Morgan Stanley (NYSE:MS) has said it expects that by 2050 electric vehicles will account for a base case of 47 percent of total global car sales, which are estimated to reach 130 million units that year. Compare that to 2016, when EVs made up a mere 1 percent of total global car sales.

Volkswagen, the world’s largest carmaker, plans to launch more than 10 electric vehicle models by the end of 2018, and aims to grow its EV sales to reach 2 to 3 million units per year by 2025. “With the planning round now approved, we are laying the foundation for making Volkswagen the world’s No. 1 player in electric mobility by 2025,” Chief Executive Matthias Mueller told a press conference.

Toyota, the world’s second-largest carmaker, aims to roll out 10 EV models worldwide by the early 2020s, targeting annual sales of around 1 million zero-emission battery EVs and fuel-cell vehicles by 2030. “As a mass-market automaker we need to expand our offering of electric cars,” said Toyota Executive Vice President Shigeki Terashi.

Ford, the company that ushered the world into the age of the automobile, says it will invest $11 billion in developing 40 hybrid and fully electric vehicles by 2022. “We’re all in on this and we’re taking our mainstream vehicles, our most iconic vehicles, and we’re electrifying them,” Chairman Bill Ford said at the Detroit auto show in January 2018.

Dozens of planned large-scale battery factories

The ramp up in large-scale battery manufacturing facilities that’s already underway is another positive indicator for future cobalt demand. “While this likely means less cobalt per battery, the ramp up in gigafactory-scale capacity over the next five years likely means we’ll use much more cobalt than was forecast even a couple of years ago,” said Chris Berry of House Mountain Partners and the Disruptive Discoveries Journal, and strategic advisor to Global Energy Metals, speaking about the move towards a less “cobalt-heavy” chemistry in NMC-batteries.

As of December 2017, Benchmark Mineral Intelligence’s megafactory tracker listed 26 battery cell factories either in production or to be in production by 2021. These factories reportedly have a combined planned capacity of 344.5 GWh. Benchmark expects new factory announcements in 2018.

Looming supply crunch

In fact, the cobalt market is expected to hit a deficit by 2022 alongside rising demand for electric vehicles. Benchmark Mineral Intelligence believes cobalt supply will need to reach 78,000 tonnes in 2021 and 180,000 tonnes by 2026 in order to meet this demand. “I still see 2020 as the critical point in the cobalt market, in which we really see deficits that could be quite significant,” Rawles told the Investing News Network at the Cathodes conference in October 2017.

Cobalt’s biggest producer, Glencore (LSE:GLEN), has said it plans to double its production of the metal over the next three years to supply potential contracts with Tesla (NASDAQ:TSLA), Volkswagen and Apple (NASDAQ:AAPL). Glencore placed its Democratic Republic of Congo (DRC)-based Katanga mine on care and maintenance in 2015 as the company built new processing facilities. Following the restart in Q1 2018, Katanga is expected to produce as much as 20,000 tonnes of cobalt per year by 2019.

The concern is that increased production could translate into a market surplus in 2019; however, what’s more likely is that Glencore will stockpile the material rather than flood the market and bring down prices. “Ultimately Glencore is not going to put it all into the market, they are not averse to quietly building up stocks and inventories,” George Heppel, an analyst at CRU, told the Financial Times.

Couple that with the unpredictable instability in the DRC (representing two-thirds of world cobalt output), the global call for conflict-free minerals and the DRC government’s proposed tax hikes for miners, and Glencore’s projected output may not be much of a factor in balancing supply with demand.

The takeaway

Advancement in lithium-ion technology may result in a reduction in the use of cobalt in each EV battery cell, but “ultimately it will remain part the chemical mix we see in EV cells for the foreseeable future,” said Rawles. And any reduction in cobalt use will be outweighed by “the growth trajectory that we see in EVs … and we still need a significant supply-side response.”

This supply-side concern may have EV manufacturers directly sourcing cobalt feedstock from miners. It’s already happening in the lithium space. Take the $28-million offtake agreement between Pilbara Minerals (ASX:PLS) and Great Wall Motors (HKEX:2333), for example.

“It will be interesting to see if this happens in the cobalt market in order for auto manufacturers to secure supply, and it could also bring new projects to market more quickly than expected,” said Rawles.

This INNspired article is sponsored by Global Energy Metals (TSXV:GEMC,FWB:5GE1). This article was written according to INN editorial standards to educate investors.

Get the latest Cobalt Investing stock information

Get the latest information about companies associated with Cobalt Investing Delivered directly to your inbox.

Cobalt Investing

By selecting company or companies above, you are giving consent to receive email from those companies. And remember you can unsubscribe at any time