Publication: S&P Global Platts
Date: 01 February 2022
Author: Diana Kinch
Editor: Richard Rubin
- Mainly primary metals to be used for 10-15 years
- Recycling to kick in when initial EV wave completes lifespan
- Aluminum price could see 30+-year high in 2022
Metals prices may continue on a rising trend for around 15 years, because the recycling needs to supplement primary supplies will kick in on a major scale only at that time, Benedikt Sobotka, CEO of diversified miner Eurasian Resources Group, told S&P Global Platts in an interview.
Energy transition is a driving trend “with all the ingredients of a new supercycle,” according to Sobotka. Annual investments in decarbonization of $750 billion-$1 trillion globally are foreseen in coming decades in a bid to keep to Paris Agreement 1.5 degree Centigrade global warming targets. This will boost demand for copper, aluminum, cobalt and other battery metals for renewable energy, transport and construction in “the biggest purchase order in the history of the mining industry: the amounts are just staggering,” he said.
Mainly primary metals will be absorbed into the system for the next 10-15 years: recycling on a major scale won’t occur for around 15 years, the expected lifespan of the current wave of electric vehicle batteries coming onto the market, Sobotka said. EVs sales more than doubled worldwide in 2021: ERG believes EVs should exceed 50% of total automotive sales in the largest markets, such as the US, by 2030, “in stark contrast to most analysts’ currently conservative forecasts of around 30%,” he said.
Still, Sobotka believes there’s no danger of nations not meeting their EV roll-out targets due to battery metals shortage.
“New prices will stimulate new investments…. but there’s a lag,” he said. New mines can take 10-15 years to be brought on stream, particularly due to licensing issues. While lithium prices have recently skyrocketed “there’s still enough lithium around … and the incentive to produce or recycle becomes more prominent as the price goes up,” he said.
“Recycling at present is more a collection problem than a price problem, but longer term there’s enough material out there,” Sobotka continued. Governments can be expected to introduce mandatory recycling schemes for batteries and electronic goods, he said.
ERG’s Metalkol RTR recycling project in the Democratic Republic of Congo is reprocessing historic mine tailings of other miners in the area, producing 21,000 mt/year of cobalt — sufficient for 3 million EVs batteries — and around 100,000 mt/year copper. As there are more tailings in the region, more feed could later be processed in this facility, prolonging its current 15-year life, Sobotka said.
Short-term disruptions because of the pandemic and price volatility will persist in metals markets in 2022, against a backdrop dominated by China, Sobotka said.
“Short-term market disruption will be driven by inflation, driving prices and by customers stocking up more than usual because they expect disruptions in supply chains,” he said. “There will be external shocks we can’t even predict yet.”
According to a note issued by ERG to the market, 2022 could see the highest aluminum prices in over 30 years.
“We believe aluminium has strong potential to outperform other LME base metals in 2022, having again breached the important milestone of USD 3,000/tonne at the start of this year, ERG said. “The market will remain in a sizable deficit for the second consecutive year, with visible inventories at the lowest level since the global financial crisis.”
China’s aluminum supply growth will be constrained by strict energy consumption controls and a slow ramp-up of idled smelting capacity, ERG noted. Accelerated decarbonization efforts and soaring energy prices are limiting capacity additions outside China, with further smelting capacity cuts in Europe possible. Around 700,000 mt, or 14%, of ex-Russia European smelting capacity has already been cut for these reasons, at a time of rising demand from construction, transport and packaging.
Cobalt’s 119% price surge during 2021 shows the market is severely short of the blue metal, the ERG note said. “In the beginning of the New Year, there are no discernible signs of any fundamental easing, with prices remaining on an upward trajectory as consumers fight to secure sparsely available spot units – a situation that will undoubtedly persist throughout 2022 and beyond.”
In addition to growth in the gigafactory and EVs sectors, the International Air Transport Association sees global air travel demand growing 52.5% on-year in 2022. Boeing and Airbus have announced ambitious production targets for this year.
London Metal Exchange monthly January cash averages for major metals were all notably up over December: high grade aluminum at $3,002/mt (+$307); copper $ 9,774/mt (+$225); cobalt $70,202/mt (+$1,277) and nickel at $22,319/mt (+$2,254).
Sobotka believes governments should set up strategic metals stockpiles in the near future to avoid supply shocks due to the geographic concentration of some raw materials supplies.
“Just look at [what happened with] semiconductors supplies,” he said. “This turned into a global scramble.”
Some governments may still need to develop the skills to pick the “right” metals for their stockpiles, he said.
Global trade in metals is set to be regulated by regional carbon taxes as governments push for traceability to “green” their supply chains, according to Sobotka. This may occur in the near term, he believes.
Typically only large companies are able to certify full ESG-compliant material, which means automakers are increasingly approaching companies such as ERG for long-term supply contracts for cobalt, nickel and lithium, he said. More than 70% of cobalt production now goes to the batteries sector, including for EVs, electronics or energy storage, which takes an even higher percentage of lithium production, he said.
“An increasing number of automakers want 10-year contracts,” Sobotka said. “But we would not allocate more than 10% or 20% to one single customer: otherwise they will want multiples of what we can produce.”
Metals prices, meanwhile, continue to be set in China, by far the world’s biggest consumer of any metal, Sobotka said.
Even though China’s growth rate may be slowing compared to previous years, “it’s still all about China,” he said. “We don’t see China’s demand falling: it’s trying to achieve higher quality growth.”
Recent stricter enforcement of metals industry decarbonization in China, via curbing coal-powered primary aluminum production and energy usage in lithium and cobalt refining, are a “shift” that has impacted global market prices, according to Sobotka.
View the original article here: S&P Global Platts