Battery Metals

Lithium prices in China fell sharply last week to hit their lowest point in over two years, after a trial delivery of the critical battery metal to the Guangzhou Futures Exchange indicated larger-than-expected supply.

The most-traded January lithium futures contract on the exchange edged up 1% on Friday to end the week at 124,050 yuan ($17,202.65) per metric ton, down 10% on the week. They shed 7% last week.

Spot lithium prices in the world’s top producer of the battery metal were effectively down close to 80% year-on-year.

The metal’s January futures contract posted a 7% tumble on Thursday last week and now stands at less than half its price when it began trading in July.

That fall came a day after a test-run by the exchange for the new contract showed higher-than-expected availability of deliverable supply, analysts and traders said.

“The trial disappointed those who had bet on a shortage of deliverable goods when the contract matured, accelerating the price fall,” said Zhang Weixin, a lithium analyst at China Futures.

The plunge in the futures market dragged down spot lithium prices. Spot lithium carbonate assessed by Fastmarkets MB-LI-0036 fell 11% this week to a 26-month low at 129,000 yuan per ton, its biggest weekly drop in seven months. Prices fell 4% last week.

Prices could fall to 100,000 yuan per ton by year-end with no expectation for a pick-up in demand, Zhang said.

US Investment bank Goldman Sachs also warned last week that prices of the EV battery metal were unlikely to rebound anytime soon, according to Investing.

Goldman analysts said they expected an excess of 29K tonnes LCE (lithium carbonate equivalent) in 2023, with projections indicating that could swell to 202K tonnes by 2024.

 

Oversupply fuelling dramatic fall

China’s lithium prices have tumbled dramatically from a peak close to 600,000 yuan last November, after Beijing ended its national subsidies for electric vehicles (EV).

A resulting slowdown in demand for lithium batteries has weighed on lithium prices for much of this year.

Analysts have said that battery manufacturers are not showing any signs that they will hike their orders, especially as lithium prices look set to fall further.

The market has also been weighed down by rising domestic production of lithium carbonate amid lower raw material costs.

Prices of spodumenme MB-LI-0012, one of the main raw materials for the lithium chemical, fell to $1,590 per ton this week, down 80% this year and the lowest since August 2021.

China’s November output of lithium carbonate is expected to climb to 43,970 tons, up 9% from October and up 20% from last November, according to information provider Shanghai Metals Market (SMM).

Inventories readily available in the market stood at 63,296 tons in mid-November, according to SMM, up from 45,917 tons in October.

Increasing overcapacity in China’s energy storage sector this year has eroded margins, sapping appetite by producers to procure the metal at higher prices.

As supply growth outpaces demand, global lithium will register a 4% oversupply this year, said CITIC Futures, versus a deficit of 6% in 2021 and 2022.

Chile has earmarked $7 million to invest over three years in up to ten research projects linked to lithium, including environmental and social aspects of mining the battery metal.

“The more we know about the salt flats, the communities that surround them, and the technologies for their extraction and use, the faster and easier we can move towards sustainable lithium production,” science minister Aisén Etcheverry said.

Applications for the so-called “Lithium and Salt Flat Research Rings” program have opened, and the funding will be awarded in mid-2024. Examples of potential research topics are new methods of brine extractions, reusing materials in the lithium value chain, the biodiversity of the salt flats, and the impact of lithium exploitation on the salt flats, the government said,

Chile announced in April a new national lithium strategy, which calls for public-private partnerships for future lithium projects.

Under the new business model, the state will take a controlling stake in operations considered strategically significant, while private firms will be able to retain control of projects in non-strategic areas.

The nation’s left-leaning government has vowed to be flexible when defining those categories, as it acknowledges that some salt flats are too small for the state to have a major role.

Chile is the world’s top copper producer and the second-largest producer of lithium. Both metals are considered vital commodities for the global transition from fossil fuels to renewable energies.

Total reserves and resources of lithium in Chile are estimated at 14.3 million tonnes, with the Salar de Atacama being the largest lithium-producing salt flat in the county, followed by Maricunga.

Before the new lithium strategy, only SQM (NYSE: SQM) and Albemarle (NYSE: ALB) were licensed to produce lithium in Chile, and limited to only the Atacama salt flat.

Addressing concerns

The fact that most reserves are concentrated in the dry Atacama area has prompted concerns from indigenous communities and environmental organizations about the possible effects of lithium extraction on water resources and local biodiversity.

“We have little knowledge and, therefore, a great space to contribute to our understanding of these ecosystems that are so fragile and so valuable,” environment minister Maisa Rojas said.

President Gabriel Boric’s administration wants to expand production beyond Atacama, as there are other 18 salt flats that could potentially be open to lithium mining. His government is also looking to encourage downstream investments.

Global demand for lithium, according to the Chile’s own projections, will quadruple by 2030, reaching 1.8 million tonnes. Available supply by then is expected to sit at 1.5 million tonnes.

Chile exported $6.9 million of lithium carbonate las year, representing a 777% increase when compared to 2021, data from the country’s Central Bank shows.

Glencore (GLEN.L) has decided to build a pilot project for an electric vehicle (EV) battery recycling plant outside of Italy, but still has its eye on the island of Sardinia for a larger facility, the Swiss mining group said on Thursday.

Responding to a Reuters request for comment on a newspaper report, Glencore said that the decision to relocate the testing and demonstration plant away from Portovesme in Sardinia would allow for faster commissioning of the project.

Glencore said in May it was going to develop a recycling hub with Canada’s Li-Cycle (LICY.N) in Portovesme, where Glencore has other industrial sites, to produce lithium and other materials from the shredded material extracted from used car batteries, known as “black mass”.

But the two companies decided that the testing and demonstration phase of this project would no longer be done in Sardinia after the island’s regional government refused to fast-track an environmental impact assessment for it.

“This development does not immediately impact the feasibility assessment of the larger hub project,” Glencore said in an emailed statement.

“The definite feasibility study is ongoing and remains focused on Portovesme. This initiative is important for our recycling strategy and aligns with Italy’s objectives for sustainable industry development,” the group added.

The Swiss group did not specify where it would build the pilot plant.

Italian business newspaper Il Sole 24 Ore said on Thursday that several countries were being considered as alternative locations, both in Europe and North America.

In a letter sent by Glencore’s Sardinian unit to Italy’s environment and industry ministries, the company said it hoped new European Union regulation on critical raw materials for decarbonisation could accelerate the permitting process for its hub project.

“We consider it essential to continue our dialogue with the ministries you represent, also to discuss how the soon to be enacted (EU) Critical Raw Materials Act can guarantee certainty and speed in the authorisation procedure for the Hub Project,” the group said in the letter seen by Reuters.

The company also confirmed in the letter its intent to carry on with the restructuring of its existing industrial activities in Portovesme.

The CGIL, CISL and UIL labour unions criticised the lack of firm deadlines for the environmental assessment procedure for the pilot plant, and asked the Italian authorities to end their “attitude of distrust” towards the hub project in Sardinia.

The oil and gas industry needs to let go of the “illusion” that carbon capture technology is a solution to climate change and invest more in clean energy, the head of the International Energy Agency said Thursday.

“The industry needs to commit to genuinely helping the world meet its energy needs and climate goals – which means letting go of the illusion that implausibly large amounts of carbon capture are the solution,” IEA Executive Director Fatih Birol said in a statement ahead of the United Nations Climate Change Conference in Dubai next week.

The technology captures carbon dioxide from industrial operations before emissions enter the atmosphere and stores it underground.

Oil and gas companies face a moment of truth over their role in the clean energy transition, Birol wrote in a an IEA report reviewing the industry’s role in transitioning to an economy with net zero carbon emissions by 2050.

Just 1% of global investment in clean energy has come from oil and gas companies, according to Birol. The industry needs to face the “uncomfortable truth” that a successful clean energy transition will require scaling back oil and gas operations, not expanding them, the IEA chief wrote.

“So while all oil and gas producers needs to reduce emissions from their own operations, including methane leaks and flaring, our call to action is much wider,” Birol wrote.

The industry would need to invest 50% of capital expenditures in clean energy projects by 2030 to meet the goal of limiting climate change to 1.5 degrees Celsius, according to the IEA report. About 2.5% of the industry’s capital spending went toward clean energy in 2022.

One of the major pitfalls in the energy transition is excessive reliance on carbon capture, according to the report. Carbon capture is essential for achieving net zero emissions in some sectors, but it should not be used as a way to retain the status quo, according to the IEA.

An “inconceivable” 32 billion tons of carbon would need to be captured for utilization or storage by 2050 to limit climate change to 1.5 degrees Celsius under current projections for oil and gas consumption, according to the IEA.

The necessary technology would require 26,000 terawatt hours of electricity to operate in 2050, more than total global demand in 2022, according to the IEA.

It would also require $3.5 trillion in annual investment from today through mid-century, which equivalent to the entire oil and gas industry’s annual revenue in recent years, according to the report.

U.S. oil major such as Exxon Mobil and Chevron are investing billions in carbon capture technology and hydrogen, while European majors Shell and BP have focused more on renewables such as solar and wind.

Exxon and Chevron are also doubling down on fossil fuels through mega deals. Exxon is buying Pioneer Resources for nearly $60 billion, while Chevron is purchasing Hess for $53 billion.

Kinterra Capital, a Canadian private equity firm, has closed its $565 million debut fund dedicated to securing critical mineral assets for battery development. The influx of private capital comes amid increasing government incentives into the sourcing and production of battery materials in North America.

Kinterra’s oversubscribed round will target asset-level investments in North America, Western Europe and Australia over the next eight to 10 years, according to the company. That means investments into lithium mines, operations to uncover cobalt, nickel and graphite, battery manufacturing plants, energy storage solutions, raw materials processing plants and other technology needed to extract, process and recycle critical battery minerals.

Kinterra says its fund has already invested “substantial capital” in a number of assets with “a robust near term pipeline.” Specifically, the firm has invested in Canon Resources, an owner and operator of two nickel development projects in Western Australia; another nickel processing plant in Quebec; and White Pine North, a large copper development project in the U.S.

“The structural underinvestment in critical minerals over the past decade has resulted in severely discounted valuations for excellent assets and created a massive need for capital investment, as countries transition to more sustainable energy sources,” said Cheryl Brandon, co-founder and co-managing partner at Kinterra, in a statement.

“Kinterra addresses that need by bringing the right combination of active management, financial resources, deep sector knowledge and cross-functional technical expertise required to identify and develop assets across the value chain,” Brandon continued.

Asset-level investments give investors more direct control over specific projects or assets, but that also leaves them open to more risk. Kinterrra says its in-house team includes metallurgists, chemical engineers, geologists, permitting and sustainability experts and mining engineers to ensure the firm is making smart investments.

The firm intends to work with leading automotive OEMs, battery manufacturers and other offtake partners in “highly structured transactions that provide long-term solutions to EV supply chain challenges,” according to Kamal Toor, co-founder and co-managing partner at Kinterra.

“Our investments will enable the complete ‘mine to battery’ solutions that OEMs require to meet their electrification objectives,” Toor said in a statement. He noted that Kinterra hopes to help the West’s generational energy transition by: 1) securing key critical mineral supply to meet expanding demand; 2) ensure that supply comes from diversified sources in stable jurisdictions; and 3) is done in a socially responsible fashion.

“Our strategy is supported by strong secular tailwinds, including robust and fundamental downstream demand, global net-zero efforts, and strategic government initiatives that support the repatriation of materials supply chains,” continued Toor.

Government incentives across the U.S., Canada and the European Union have spurred more private investment into an industry that is increasingly becoming more regionalized.

President Joe Biden’s Inflation Reduction Act, signed into law August 16, 2022, requires that the majority of the value of battery components be produced or assembled in North America in 2024 to qualify for half of the legislation’s EV tax credit, or $3,750. To get the remaining half, battery makers will have to source most of the value of critical materials from the U.S. or a free trade agreement country. In addition to spurring up domestic industry, the stipulations in the bill are designed to reduce reliance on China to supply and manufacture lithium-ion batteries.

Canada has also agreed to spend billions to support the transition to electric vehicles and energy. Over the summer, the government provided up to $15 billion CAD to automaker Stellantis and battery maker LGES to build an EV battery plant in Ontario. Canada is also supplying billions to boost critical materials mining in the country.

The EU Green Deal Industrial Plan also sets targets for the region to mine 10% of the critical raw materials it consumes, with recycling adding another 15%. The bloc also intends to increase processing to 40% of its needs by 2030.

In order to meet the goals set out by governments around the world, there will need to be a drastic scale up in mining and exploration projects. According to McKinsey, investments in mining, refining and smelting will need to increase by $3 trillion to $4 trillion by 2030 to “bridge the great raw material disconnect.”

Ford Motor will scale back the investment, capacity and the number of jobs planned for an electric-vehicle (EV) battery plant in Michigan that has drawn fire from U.S. lawmakers for its use of technology supplied by Chinese battery maker CATL, the automaker said on Tuesday.

Ford said it would restart construction of the factory near Marshall, Michigan, after being paused two months ago.

The No. 2 U.S. automaker plans to start producing low-cost lithium-iron batteries by 2026 based on technology licensed from CATL. Ford will own the factory, and has agreed to give the United Auto Workers the opportunity to organize the plant’s workers without a vote.

The company’s ties with CATL have drawn fire from U.S. lawmakers, who oppose the country’s EV subsidies flowing to a Chinese entity.

Representative Mike Gallagher, a Republican who chairs House committee on China, said on Tuesday Ford’s reported decision was disappointing.

“The American people deserve better from an iconic U.S. company that receives massive taxpayer subsidies. Ford needs to call off this unethical deal for good,” Gallagher said.

Ford is pushing for the U.S. Treasury Department to approve lithium-iron, or LFP, batteries made at the Michigan factory to qualify for Inflation Reduction Act EV subsidies. Ford is already using imported LFP batteries in its Mustang Mach-E electric SUV.

“We are confident in terms of IRA benefits,” Ford spokesman Mark Truby told reporters in a teleconference on Tuesday.

A Treasury spokeswoman did not comment.

Ford said it was scaling back its original plans to spend $3.5 billion to make the Blue Oval Battery Park Michigan big enough to produce 35 gigawatt hours of batteries annually and employ about 2,500 people.

Ford now plans to cut the Michigan battery plant’s capacity to 20 gigawatt hours and reduce hiring to 1,700 jobs.

Rival General Motors has also slowed investment in new EV capacity for North America as rising interest rates have slowed the growth in demand. GM said on Tuesday it will hold a call on Nov. 29 to brief investors on its outlook.

Ford shares fell 1.5% while GM closed down 2.2% and Stellantis dropped 2.1% in New York trading on Tuesday.

The Detroit Three automakers all face higher labor costs in the U.S. under newly ratified contracts with the United Auto Workers.

Ford’s capital investment will be reduced as well, Truby said, without giving an exact figure. He indicated the total investment will be proportional to the 40% reduction in capacity. That indicates a new price tag of about $2 billion.

Ford said in October that it would cut future EV investments overall by $12 billion compared with previous plans. The company has previously postponed construction of a battery factory in Kentucky and another in Turkey.