Battery metals have been on the rise since 2021, but volatility has been the main trend in these markets, with some experiencing pullbacks and rebounds throughout 2022.
Lithium hit all time highs last year, cobalt doubled in price and nickel reached a historical level surpassing the US$100,000 per metric ton mark earlier in 2022.
But the second quarter of the year saw battery metals take a pause in their rally, with nickel and cobalt retreating and lithium stabilizing.
“I think battery metals face all different types of challenges and very different drivers of volatility,” said George Heppel, procurement and investment strategy for battery metals at BASF.
In the case of cobalt, the market has been under pressure from shipping and logistics issues, which were exacerbated during the COVID-19 outbreak.
“The mine pipeline looks pretty healthy, generally speaking, but there just hasn’t been enough investment in infrastructure, especially in Central Africa,” Heppel said during a panel discussion at Fastmarkets’ European Battery Raw Materials conference in Barcelona. “I think that’s going to continue to be the biggest driver of volatility for cobalt — how to manage that logistics, infrastructure risk.”
Meanwhile, nickel volatility has come from different factors — the main one being the crackdown of trading at the London Metal Exchange.
“I think also the introduction of new products as well as new technology changes on the Class 1 side, with the introduction of nickel matte, the big investments in Indonesia — (those) are a big driver as well,” Heppel said.
For lithium, the surge in demand and a lack of proper supply to meet the needs of the market has been a main catalyst.
“To some extent that can be taken for granted, that demand for lithium has increased quite dramatically in the last couple of years,” Heppel said. “But I think it’s worth remembering that a big driver of that has been sort of this narrative of the green recovery post COVID.”
Even though prices stabilized in the second quarter, lithium has remained at historic highs in the past year, with the Benchmark Mineral Intelligence lithium index showing prices are up more than 120 percent year-to-date.
“We went from a state of prices being defined by marginal cost of production to suddenly a scarcity of lithium, with prices really being defined today by whoever is going to pay the last dollar for lithium,” Daniel Jimenez of iLi Markets said. “I think prices are going to continue at this very high level … at least for the next three, four years. And so, we expect a lot of volatility.”
But has the market seen the worst of volatility yet?
“I would first see relatively stable prices in this higher wave for two or three years. But then I don’t see a likely smooth slowdown in price,” Jimenez said. “So the moment will reach sufficient supply, but with little excess of supply, prices will go down to levels close to marginal cost of production.”
When asked which actors in the supply chain are more exposed to risk, Jimenez, who previously worked at top lithium producer SQM (NYSE:SQM), said that looking back at this situation two years ago, the balance of power has completely shifted from the demand side onto the supply side.
“Over the next four years, the amount of incremental lithium additions which will come from new players is relatively limited, and most of it is already committed,” he said. “I think the best chance to secure lithium is really to try to go to the coming producers and secure something with them. I would say at this point: secure volume, price is secondary.”
The question about original equipment manufacturers (OEM) becoming miners to be able to secure supply continues to come up in discussions, but for Jimenez, they should leave the mining operations to the experts. However, an alternative would be for OEMs to become passive investors in different producers.
“Downstream players looking into potentially having equity investments in producers … I would say that is probably something one of those with bigger pockets are able to do. And I would expect much of that happening over the next year or so,” he said.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
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