Chinese EVs and Renewables Driving Battery Metal Demand

China has made it a priority to ensure that the country becomes a world leader in electric vehicles (EVs) and the battery metals market.

As a result, China is the most battery metal-hungry nation on Earth. The country is now the largest EV market in the world at a time when environmental crackdowns have significantly limited its own domestic battery metal production capacity, presenting a major opportunity to international battery metal suppliers. As China searches the globe for lithium, manganese, nickel, copper, zinc and more, resource companies around the world are positioning themselves to serve the emerging EV market.

The battery metals market

According to the China Association of Automobile Manufacturers (CAAM), Chinese automakers produced 1.27 million EVs and sold more than 1.25 million units in 2018. That’s a 59.9 percent increase in production over the previous year. The Chinese government expects EVs to account for 12 percent of all auto sales in the country in 2020 and plans for EVs to account for one-fifth of all sales by 2025. China’s unprecedented adoption of EVs has been largely driven by the state.

In 2019, the Chinese government offered a subsidy of up to 110,000 yuan (about US$15,445) on EV sales along with major financial incentives for automakers. The subsidy was reduced in June, causing CAAM, a government-backed industry consortium, to reduce its projections for new energy vehicles (NEVs) to 1.5 million units. CAAM originally projected 1.6 million NEVs to be sold in China in 2019. In order to further incentivize NEV production, resource companies are working to develop more affordable battery options.

China is leading the world in renewable energy capacity as well. China’s renewable energy capacity reached 728 gigawatts at the end of 2018, mostly from hydroelectric and wind power. China’s renewable energy capacity is more than double that of the US, which currently has the second-highest renewable energy capacity.

Whether China’s interest in EVs and renewables is motivated by the need to improve the country’s air quality or the prospect of cornering the market for a technology, China is one of the largest forces driving EV growth. In June 2019, the Chinese government imposed new emission standards that have severely limited the sale of gasoline engine cars that don’t meet strict emissions standards. Radical measures like these have been created to ensure that China continues to meet its EV adoption goals.

According to BloombergNEF, China is home to 73 percent of the world’s lithium-ion battery manufacturing capacity, compared to just 12 percent from the US. Lithium-ion batteries are a key component in EVs. As EVs become increasingly ubiquitous worldwide, the global demand for lithium-ion batteries is expected to increase accordingly. It makes sense then that China’s move to dominate the EV market is mirrored by its moves to control the lithium and lithium-ion battery supplies around the world.

“China is the major producer of manganese alloy and manganese sulfate, which is used in battery construction. There are very few battery producers outside of China and there is only one Tesla (NASDAQ:TSLA) gigafactory that is in production in the US. Therefore, battery metal demand is centric in China where large battery manufacturers are located,” Philip Thomas, president and CEO of battery metal and manganese producer A.I.S. Resources (TSXV:AIS,OTCQB:AISSF), told Investing News Network.

Chinese battery metals demand

China’s incredible capacity for battery production is aiming to serve insatiable battery metals demand. The majority of that demand is being met by sources from outside the country. For example, in 2017, China imported 21.26 million tons of manganese ore. Manganese imports accounted for 80 percent of China’s total supply as the country is home to only about 7 percent of global manganese reserves.

China’s copper imports tell a similar story. The country contains only 4 percent of global copper reserves, so China imported 88 percent of its copper ore consumption from abroad in 2017. China’s copper imports totaled 17.35 million tons in 2017. The country is expected to continue importing massive amounts of battery metals up to 2023, according to a December 2018 report by Research and Markets.

The story for lithium is a little different. China hosts the fifth largest collection of lithium deposits on the planet; however, only one is economic due to the high magnesium to lithium ratio being greater than 100 to 1, and so the country must still import 80 percent of its supply of the metal from foreign sources. While the country’s lithium resources are quite strong, the production of these resources has been very weak due to the poor brine chemistry.

China’s underutilization of its domestic resources has been in large part due to environmental concerns. The Jiajika mine in China’s Sichuan province is one of the country’s largest hard rock lithium mines with reserves of 1.89 million metric tonnes, yet it has remained inactive since 2013 when pollutants caused the sudden death of much of the surrounding area’s marine life. This story is not unique. In recent years, major environmental crackdowns and subsequent closures of lithium, zinc, manganese and graphite producers have occurred in the country. This has increased China’s reliance on foreign metal supplies.

A.I.S. Resources is one of the international resource companies capitalizing on China’s battery metal demand. In August 2019, the company sent a trial shipment of 272 metric tonnes of manganese ore to China from its operations in Peru. The company’s near-term target is to ship 10,000 metric tonnes of manganese ore per month. A.I.S. is currently exploring its assets in Peru with long-term plans to supply China with lithium from Argentina as well as up to 40,000 metric tons of manganese ore per month from its mines and joint venture in Peru.

Chinese demand for battery metals could be a positive sign for resource companies, including cobalt producers like 21C Metals (CSE:BULL,FWB:DCR1,OTCQB:DCNNF) and copper companies like Copper North Mining (TSXV:COL). When including the battery, a typical EV requires between 4 and 30 kilograms of cobalt and 83 kilograms of copper. With the EV revolution already in full swing, battery metals producers can expect demand to remain strong as nations transition to sustainable vehicle options.

Takeaway

China’s dominance of the global EV lithium-ion battery market is dependent on a massive supply of battery metals from the global market. Resource companies able to supply China’s new appetite for battery-grade materials now could be in a position to capitalize on the push towards sustainable fuel sources.

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