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Price of Key Battery Materials to Continue Upward Trend Until 2022

Bloomberg News reported that the rising cost of key metals in lithium-ion batteries will continue until 2022 which may inflate battery prices and increase the cost of electric vehicles.

The spread of COVID-19 has caused a continuing supply chain crisis. However, the global demand for green energy and renewable energy has not slackened. The demand for key lithium-ion battery materials such as lithium, cobalt, and nickel continues to rise which will increase battery costs and may slow the adoption of electric vehicles.

Moreover, there is the new Omicron variant of the COVID-19 virus. Bloomberg NEF analyst Kwasi Ampofo believes that the new mutation of COVID-19 is a stumbling block in the pace of global economic recovery. She predicts that supply chain restrictions will continue from this year to 2022 and the prices of lithium, graphite and cobalt are expected to remain high and will not fall until 2023. Nickel prices will stabilize first in the second half of next year.

The lithium price index has tripled this year, hitting a record high. Chinese lithium producer Shenzhen Chengxin Lithium Group expects prices to remain high for "a period of time." Due to strong downstream consumption and restrictions on brine capacity and spodumene supply, it will be difficult to alleviate global market tightness in the short term.

However, the demand for electric vehicles continues to rise. Sales of electric vehicles are expected to soar from 3 million units in 2020 to 66 million in 2040. Expanding production capacity is a positive development and can be used to meet future consumption growth.

Benchmark Mineral Intelligence analyst Cameron Perks predicts, as contract prices start to catch up with spot prices and supply still fails to meet demand, a continued rise in global average lithium price is expected in the next few years. Prices will not have a chance to fall until 2025 or 2026.

Additionally, cobalt prices are also rising this year. S&P Global Market Intelligence analyst Alice Yu stated that cobalt metal is now facing the problem of supply chain disruption in South Africa and Omicron has increased risk and delayed the timing of any price adjustment. However, Wang Wentao, general manager of Shanghai Qin Cobalt, holds a different view. He believes that the supply side has increased cobalt production capacity set to come online next year.

As for nickel, there is a chance prices will fall next year. According to S&P global data, the price of nickel has risen by approximately 17% this year but Indonesia is actively expanding its supply and the market may experience overcapacity next year. China is a major producer of lithium battery cathode material graphite but, due to power curtailment, the price of graphite has risen sharply since September. A BloombergNEF report pointed out that power demand will increase this winter and power supply may be tight. Graphite production capacity may not be fully restored until the first half of 2022.

The cost of battery modules accounts for 35% to 40% of the total cost of electric vehicles. At present, battery manufacturers have begun to feel the pressure of rising raw material costs and may push up the price of electric vehicles. BloombergNEF indicated that this is the first time battery costs have risen since they started tracking battery costs in 2012 which will have an impact on the electric vehicle industry. If the cost of battery modules drops to US$100 per kilogram, the price of electric vehicles can equal that of gasoline vehicles, but the increase in raw material costs will delay this point by two years. It is estimated that this parity will not occur until 2026.

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