The U.S. government’s plan to have electric vehicles make up the majority of new vehicles sales in less than a decade will have ripple effects across markets for so-called “green” metals, those used to achieve cleaner energy goals, such as lithium, cobalt, nickel and copper.
On April 12, the Biden Administration proposed vehicle pollution standards to make all vehicles cleaner and more efficient. If finalized, the proposed rules could result in the “electrification of 67% of new sedans, crossovers, SUVs and light trucks by 2032.”
The first question that came to mind for John Caruso, senior asset manager at RJO Futures, was about “whether we have the grid capacity [and] logistics in place for this.”
He pointed out that lithium, nickel, cobalt and copper prices would likely see a big impact from a significant climb in sales for electric vehicles, also known as EVs. Those metals are used in the production of batteries, with copper also a key component for electric motors and wiring.
China’s importance in this EV sales goal is undeniable.
“China is a major supplier of crucial components, such as lithium-ion battery cells, and is the main provider of [a] majority of raw materials, which are critical for the production” of EVs, including lithium, cobalt, graphite and nickel, said Chandan Kumar GV, head of products at Indxx.
“A sustained scarcity of these materials could hinder the transition towards electric transportation, resulting in elevated prices for EVs and jeopardize car manufacturers’ profit margins,” he said.
“ “A sustained scarcity of these materials could hinder the transition towards electric transportation, resulting in elevated prices for EVs….” ”
— Chandan Kumar GV, Indxx
Kumar, summarizing his research, pointed out that for EVs, batteries account for almost 30% to 40% of the value, and when it comes to the critical components of the EV batteries, China is responsible for 70% of production capacity for electrical conductor cathodes and 85% for anodes.
Over half of lithium, cobalt and graphite processing and refining capacity is located in China, which produces about 75% of lithium-ion batteries, he said, citing data from the International Energy Agency.
China’s mining companies and battery manufacturers have been “trying to acquire resources around the world over the past decade to ensure secure futures supplies of copper, cobalt, lithium and other raw materials,” said Kumar.
For copper, “increased electrification needs, including the buildout of the electricity grid, will undoubtedly increase demand,” Caruso told MarketWatch.
Some estimates project a supply and demand shortfall of about 6 million to 7 million metric tons of copper at the beginning of the next decade, he said. “Problems with expanding mining operations in South America, specifically Chile which accounts for approximately 27% of the world’s copper, will contribute to the expected shortfall in supply.”
Copper prices, said Caruso, have cooled from all-time high prices in March 2022, though remain very much elevated on a historical timeline. RJO Futures expects higher prices for copper to come by the end of the year from “increased electrification and Chinese economic demands,” he said.
Copper futures on Comex HG00,
Cobalt has seen a demand shift from traditional applications like superalloys, which are used in airplanes, and hard metals used in tools toward manufacturing for battery applications, said Jessica Roberts, head of forecasting at Benchmark Mineral Intelligence.
More recently, there’s been a “pivot” within the battery segment from portable battery applications towards the EV market, she said. “That will only get stronger over time as EV sales continue to climb.”
The London Metal Exchange cash price for cobalt was at $34,500 per metric ton on Thursday. It’s down 33% so far this year.
Cobalt is likely to be in a surplus until the mid-2020s “when better demand will push it into a deficit,” said Roberts.
Cobalt prices, meanwhile, have come down recently following “strong mine output,” she said. With “stocks overhanging the market, we expect prices to remain at lower ranges in the short term.”
Nickel has historically been used in the production of stainless steel but batteries have been gaining an increasing share of demand for the metal, said Roberts.
Benchmark Minerals Intelligence estimates that global nickel demand last year was just under 3 million metric tons, with 10% of that going to lithium-ion batteries. By 2030, “we expect battery demand will reach a third of the global nickel market,” she said.
At the moment, nickel is in a surplus and that’ll likely continue into the mid-2020s when demand growth, mainly from batteries, will pull it into a deficit, said Roberts. She points out that there has been a lot of volatility in nickel prices on the LME since a short squeeze last year, but prices “will reflect the supply/demand balance into the medium term.”
LME cash nickel prices were at $25,540 per metric ton on Tuesday, down 16% year to date.
Lithium, however, may be impacted the most by the Biden administration’s proposal, said Cameron Perks, principal analyst at Benchmark Mineral Intelligence.
He said the proposal may potentially increase forecast lithium-ion battery demand by 78%, according to an analysis by Benchmark Source.
The global lithium market is forecast be “balanced” from around 2024 to 2028, using a “quite conservative demand forecast,” said Perks. The forecast model prior to the U.S. EV sales proposal announcement already suggested that moving towards government and original equipment manufacturer “ambitions” during that time period would result in an ongoing deficit and higher prices.
The new emission targets may mean that any actual balance will be “quite short-lived, as EV sales pick up in the [second] half of the decade,” he said.
On the LME, lithium hydroxide with an April 28 expiration was at $46,055.56 per metric ton Thursday, down nearly 46% this year, according to data from CQG.
Meanwhile, Chile on Friday reportedly announced plans to bring its lithium industry under state control.
Chile’s announcement “could have far-reaching implications for mining investment in the nation,” said Kevin Murphy, Director, Metals & Mining Research at S&P Global Commodity Insights in emailed commentary.
For those interested in EV-related metals, investing options are limited.
It’s difficult to invest in green metals directly given that it’s “not practical” to buy these metals, store, and resell them, and while futures contracts exist for a subset of green metals, most investors don’t typically trade futures contracts, said Brandon Rakszawski, director of ETF product development at VanEck.
Metals that are used in applications, products, and processes that enable the energy transition from fossil fuels to cleaner energy sources and technologies are known as green metals, he explained.
Those metals include copper, nickel, lithium and cobalt, and are used in EVs and battery technologies, as well as in wind, solar, and hydro energy, Rakszawski said.
The VanEck Green Metals exchange-traded fund GMET,
The ETF is little changed year to date, and fell around 19% last year.
The ETF experienced “headwinds” throughout last year, but has seen its share price on the uptrend over the last six months, said Rakszawski. “The energy transition is a long-term secular trend, therefore the short-term returns of GMET may not reflect the longer-term potential in the space.”