Australia battery metals market: EV sales
The main demand driver for lithium and cobalt is the electric vehicle industry, which saw sales reach all time highs in 2021 and posted another record year in 2022.
“The global market share for passenger EVs has quadrupled since 2019, with EV sales representing about 9 percent of the car market in 2021,” the Office of the Chief Economist says in its latest report. “Strong underlying demand and EV manufacturers’ declarations of further increases in production, imply that EV sales could reach almost 40 percent of annual vehicle sales by 2030.”
In 2021, sales in Australia alone tripled from the previous year to 20,665 electric vehicles sold, up from 6,900 in 2020. This increase represents a 2 percent market share of all sales, compared to 0.78 percent in 2020, according to the Electric Vehicle Council of Australia. So far in 2022, the EV market share has increased by 65 percent to 3.39 percent of new light vehicle car sales.
“It’s great to see so much momentum behind EV sales in Australia, but to put our 3.4 percent in context – Germany sits at 26 percent, the UK at 19 percent and California at 13 percent. The global average is 8.6 percent so Australia has a long, long way to come,” Electric Vehicle Council Head of Policy Jake Whitehead said.
Even though the Australian EV market might seem small, global passenger EV sales are expected to reach over 14 million in 2023, which in turn means that demand for battery metals is expected to keep increasing.
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 this growing EV industry will come from.
Speaking with INN about how the lithium market performed in 2022, Daisy Jennings-Gray, senior analyst at Benchmark Mineral Intelligence, said she certainly anticipated a huge hike in lithium pricing through 2022, but the scale at which this happened was unprecedented.
“What was particularly surprising compared to 2021 was the steep climb in feedstock prices, which really indicated the extent of supply tightness in the market,” she said. “(It also) highlighted that high lithium prices aren't just reactionary to sentiment but a reflection of the raw material disconnect.”
Australia hosts the world’s largest lithium mine, Greenbushes, and is also home to key producers, including Pilbara Minerals (ASX:PLS) and Mineral Resources (ASX:MRL). The country’s lithium production is expected to increase in coming years as further capacity comes on stream.
“Lithium had a stellar year, in terms of LCE price, globally. In that environment, Australia's lithium exports are growing at an unprecedented rate,” Paola Rojas of Synergy Resource Capital, told INN.
Lithium companies share prices had an interesting year, as in mid-2022 investment bank Goldman Sachs (NYSE:GS) released a bearish report on lithium prices, which caused major volatility in lithium stocks everywhere.
“On the flip side, GS’ allocation to lithium miners has never been larger (as of Sep 2022; from the Australian players they hold PLL) while their head of commodities research regularly stresses the gap in supply ahead,” Rojas said. “I caution investors to take any extreme views with a grain of salt and use more than one source to form their own opinion as to where the market is going.”
Interest in Australian lithium miners was also on the rise in 2022, with major EV makers such as Tesla (NASDAQ:TSLA) betting on supply from the country. And as 2023 begins, deals between OEMs and battery metals miners will only continue to gain momentum.
“These types of deals are a must for battery manufacturers and OEMs given the market dynamics (majority of the market operating within the constraints of private contracts),” Rojas said. “I expect these deals to become more aggressive though (i.e. either better prices, longer commitments or other covenants) as competition for near term production / production becomes fierce.”
Australia battery metals market: Cobalt was well supplied
Cobalt, another key battery metal, also experienced a spike in prices in 2021, doubling in value on the back of surging demand for electric vehicles. Cobalt’s 2022 story was different from lithium, with prices pulling back in the second half as the market was well supplied.
Cameron Hughes of Benchmark Mineral Intelligence told INN the cobalt market performed in line with expectations in 2022.
“The market was forecasted to enter a small surplus in 2022 so it is not too surprising prices are ending the year lower than where they were at the end of 2021,” he said. “Of course, some things which impacted the cobalt market in 2022 were unpredictable, such as the COVID-19 lockdowns in China.”
Another trend that continues to be at the forefront of discussions regarding the cobalt market is the increasing market share of cobalt-free cathode technologies. But for Jack Bedder of Project Blue investors should not be concerned.
“As has been the case for the past decade, batteries will continue to drive demand dynamics,” he said. “Cobalt demand in lithium-ion batteries is set to increase at 11.3 percent per year. In the near term, the threat of cobalt substitution is low as this represents a longer-term trend.”
Australia is currently the third-largest cobalt producing country in the world, after Russia and far behind leading producer the Democratic Republic of Congo (DRC).
There are currently four cobalt producing companies operational in the country: Glencore, BHP, First Quantum Minerals and IGO, 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 a report by the OCE. “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 ahead for prices
As the new year begins, investors interested in the battery metals market in Australia wonder what might be ahead for prices.
Despite recent corrections, prices for lithium are expected to remain at historical highs as demand outstrips supply in the foreseeable future.
“I see lithium (LCE) prices dropping, but I don’t see it falling below US$30,000 per tonne, which is a good baseline being used for most prefeasibility/definitive feasibility studies,” Rojas said. “I am happy to see miners being conservative in this, given volatility. We can all make great returns at those levels, plus if prices remain high (they are in my opinion) for too long there are stronger incentives to find substitutes.”
Rapid price movements and the relative immaturity of the market will likely lead to ongoing uncertainty, the Office of the Chief Economist says in its latest report.
“While expansions to production are already underway in Australia and overseas, there are long lead times for lithium mine and brine operations,” it says. “Moreover, the potential for delays in bringing such large volumes of lithium into production mean risks remain of persistent supply shortages over the next few years.”
This year, prices for spodumene are forecast to rise to an average US$4,010 a tonne, up from around US$598 a tonne in 2021, while lithium hydroxide is expected to rise from US$17,370 a tonne in 2021 to US$61,200 a tonne in 2023.
In terms of Australia’s lithium production, output is projected to rise from 335,000 tonnes of LCE in 2021–22 to 399,000 tonnes of LCE in 2022–23, growing to 470,000 tonnes tonnes in 2023–24. Meanwhile, Australia’s spodumene concentrate exports are forecast to lift from 2.3 million tonnes in 2021–22 to 3.2 million tonnes in 2023–24.
For the cobalt market, prices are expected to fall back during the first quarter of 2023, Bedder of Project Blue said.
“They should strengthen as the year goes on – and as demand picks up,” he said. “But for now I think there is sufficient intermediates, metal and chemical supply.”
Benchmark Mineral Intelligence also anticipates cobalt prices to fall in early-2023 given the significant forecasted market surplus.
“However, it is important to note the oversupply will come from excess cobalt contained in hydroxide, whilst the metal market will remain relatively tight,” Hughes said. “This, along with robust long-term cobalt demand, is expected to prevent prices falling too far in 2023.”
Australia battery metals market: Factors to watch
When asked about what factors could impact the battery metals space in 2023, Rojas said the space is becoming increasingly competitive and may get saturated soon.
“In general, a healthy dose of skepticism is good. Just because a company has a project in a promising location that doesn’t mean they will be able to explore effectively or that they have a future mine,” she added.
Another factor to continue to watch is the geopolitical dynamics in lithium, as the US and Europe continue to take steps to reduce their dependence on Asia. In 2022, the Inflation Reduction Act was signed into law in another move by the US government to develop its domestic lithium-ion supply chain. The legislation requires automakers to have 50 percent of critical minerals used in EV batteries come from North America or US allies by 2024.
“Policies such as these — as well as broader trends in global battery and EV production — can be expected to affect trade patterns for Australia’s resource exports (including lithium) over the coming decade,” the OCE says. “However, the likely rate and magnitude of any resulting changes to Australia’s export markets remains subject to considerable uncertainty.”
For Rojas, 2023 could be a record year for mining mergers and acquisitions.
“I think we’ll see a huge increase in M&A as majors rush to scoop up juniors with well-defined resources/reserves and falling market capitalisations given many have struggled to raise capital or are just oversold as investors move to safer assets,” she said.
The managing director of Synergy Resource Capital believes this year could see copper see the biggest growth.
“2023 should be the year for copper if we want the energy transition to succeed. We need to secure the next decade of supply so we must invest now,” she added.
When asked about which juniors are better positioned to see growth in 2023, Rojas said she is keen to see Sayona Mining (ASX:SYA) restart the North America Lithium operation this quarter.
“From the smaller juniors listed on ASX, we hold a few across multiple portfolios including Lithium Power International (ASX:LPI), Hot Chili (ASX:HCH) and Lepidico (ASX:LPD), but closely watching Los Cerros (ASX:LCL), Piedmont (ASX:PLL) and others,” Rojas said.
“Also keeping an eye on the Canadian listed juniors that are exploring in Tasmania, like CopperCorp.”
Don’t forget to follow us @INN_Australia for real-time updates!
Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Lithium Power International and Hot Chili are clients of the Investing News Network. This article is not paid-for content.
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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