2021 was another eventful year in the battery raw materials space. EV sales continued to see strong growth, with Chinese sales alone surging 160% year-on-year to exceed 3.5 million units. Booming demand tested supply-chains, with spot prices for all key battery inputs rising over the course of the year. There was also a significant rise in the use of LFP batteries in EV applications, and considerable LFP cathode investment from the beginning of the year.
Expect no slowdown this year in the scramble to lock-in supply deals, M&A activity, and bullish new tech announcements. Below are five areas we will be watching closely in 2022:
Likely another good year for lithium producers
Spot prices for 99.5% lithium carbonate in the Chinese domestic market are reported at US$48,700/t at the beginning of 2022, compared to US$8,300/t in the same period last year. Can prices maintain at such a level, and have we entered a new paradigm of lithium pricing?
With EV sales growth showing few signs of slowing, and no longer just dependent on the Chinese market, demand seems assured. The supply response is also underway. And while expansion at Greenbushes and the restart of Wodgina are likely to generate additional feedstock for their respective owners, uncommitted tonnages from Pilbara's restart of Ngungaju will help ease current tightness in concentrates markets. Add to this first expected production of lithium chemicals in Australia (Kwinana and Kemerton), plus additional tonnages from South America and China, and supply should see growth of 20% year-on-year.
On balance, however, we see a small surplus in battery grade lithium chemicals to meet demand surprises or struggling new supply. While the wild ride in prices is likely to mean much higher contract prices for many buyers this year, we expect the current high spot prices to come under pressure as we move into H2 2022. Overall, 2022 will likely be another good year for lithium producers.
Finally, as price trends upwards, expect M&A activity from both aggressive incumbents like Ganfeng and new entrants vying for a slice of energy transition action.
Return of Mutanda's cobalt supply to provide respite
Tightness in the cobalt intermediates market was a major story in 2021. Ultimately, spot markets felt even more of a squeeze over the year as coronavirus related restrictions, civil unrest in South Africa and imbalances in shipping containers, all conspired to limit supply. In this environment, payables for cobalt hydroxide surged above 80% in Q1 2021, versus a 2020 average of 70%, and remained there for the rest of the year. Higher payables provided cost support for both cobalt sulphate and metal, with the latter staging a late-year rally as ex-China purchasing started to recover.
In 2022, all eyes are on the resumption of exports from Mutanda to provide respite for the cobalt sector. The operation restarted hydroxide production in Q1 2021 and is planning to work through stockpiles over 2022-2025 to produce 11 ktpa of cobalt in hydroxide. Overall, we expect Congolese cobalt intermediate production to increase by over 30% year-on-year to reach 144 kt Co in 2022.
While the ‘DRC - China' cobalt relationship will remain one of the biggest dependencies and supply security headaches for some time, look for new frontiers in cobalt supply opening up this year. Indonesia will see increasing tonnages out of the slew of HPAL projects led by first movers Lygend and Huaqing. Likewise, North American Jervois' mining operation in Idaho, and Electra Battery Materials' (formerly First Cobalt) refinery in Ontario are supplies to watch.
Graphite - current tightness to ease in H2
Electricity restrictions and seasonal restocking ahead of winter shutdowns in northern China have tightened fundamentals and sent prices northwards. At the same time, sky-high coal process and power rationing affected synthetic graphite value chains in areas like Inner Mongolia, leading to higher prices for all anode materials.
While winter power rationing may underpin higher prices in the near term, we expect current tightness to ease as we move into H2 2022. The fine flake market should benefit from the revival of China's import market, led by the ramp up of Syrah's massive Balama mine in Mozambique, and additional tonnages from Madagascar.
Syrah Resources had signed a deal with Tesla to supply natural anode material from its Louisiana facility. This will likely ease the FID on building the 10 ktpa commercial plant expected in January. The race is on to be the first commercial producer of natural graphite anode material outside of China, something that it is not without challenges.
Finally, look for more build out of synthetic anode plants in China this year, particularly in areas where hydropower can mitigate some of the ESG risks attached to graphitisation.
Battery pack costs to increase
2022 will see an upward deviation in the downward price trend for EV packs that we have been used to. On average, battery materials make up around 70% of a pack's total cost and the dramatic turn for material prices last year will increase battery makers' bills this year.
Battery makers face a stark choice: increase pack prices to account for increased material prices or absorb the extra costs to maintain market share. Several manufacturers - including the South Korean major trio - are reportedly choosing to increase pack costs by 5% to 20%, but we expect an average increase of 4% over the year.
The increased pack prices will fuel the brewing battery chemistry conundrum faced by EV makers. Major Asian battery makers have increased commitment to LFP production, but we are yet to see a major European EV manufacturer champion the technology. The increase in pack prices will also add more fuel to the rumours that Tesla will produce LFP cells in its new Berlin gigafactory - set to operate this year after regulatory delays.
European junior battery manufacturers to be tested
2021 saw a flurry of ambitious battery production targets announced by both European battery manufacturers and automakers, some with little experience of battery production. Building battery production is no easy feat - especially for newcomers on the 30+ GWh scale - and we expect to see these junior manufacturers tested in 2022.
We forecast European battery demand to expand nearly seven-fold from 2021 to 2030, resulting in an immense pressure for newcomers to supply cells. While Northvolt received hefty orders from VW and BMW, we do not expect all newcomers to succeed. The news of JM's surprise exit from a seemingly strong position shows the competitiveness of the market.
The looming Battery Passport scheme will also shake up the market for those battery producers who use a questionable supply chain - high carbon emissions, impact on the local environment and human rights. Junior battery producers in Europe are touting their ‘green credentials', hoping to benefit from using energy-lenient natural graphite, renewable energy and recycled material. We will expect these ESG factors to attract customer attention, even with likely costlier cells.
Gavin Montgomery is a research director for battery raw materials at Wood Mackenzie. To find out more about Wood Mackenzie's battery technology offerings, join Gavin and other experts at the Future Facing Mined Commodities Forum .