Every other day, news abounds about the price of lithium, copper, nickel and a range of other critical minerals. The past few years have been a rollercoaster for investors, and the job of a commodity forecaster would have been one of the most difficult going around.
Lithium prices looked like they would go up forever…until they didn’t. At the start of the year, the copper and nickel prices were skyrocketing….and then they weren’t. The strange part is the disconnect between prices and stockpiles. In previous rallies, price gains were often accompanied by, or a result of, low stockpiles indicating a scarcity of supply. Strange then that the price slides in nickel and copper align with a drop in stockpiles as well.
For battery minerals, the general consensus is that there a looming deficit on the horizon as the global population makes the transition to electric vehicles and other Li-ion powered devices. Higher EV sales require more batteries, which in turn requires more critical minerals to make them.
So if we expect to see more demand for critical minerals over the coming decades, why are the prices of many of these commodities in the doldrums?
A recent report by UBS[i] on upside in the graphite sector could provide some clues, which might provide some guidance for other critical minerals.
UBS sees demand for natural graphite growing 6x by 2030, largely on the back of a 5x increase in EV sales and larger battery sizes. Prior to the COVID-19 pandemic, EV sales accounted for 2% of global car sales. UBS estimates that this could increase to 17% this year and up to 54% by 2030.
Many forecasters have drawn the analogy between EV sales and the take up of smart phones just over a decade ago. Once sales hit 50%, the rest of the market fell away with the new technology dominating nearly all sales within two years.
Synthetic graphite, a sector dominated by China, has eaten a decent chunk of the demand over the past decade, however UBS sees the emergence of Lithium-Iron Phosphate (LFP) batteries as a key area where natural graphite has an advantage.
While LFP batteries in EVs are relatively new, the take up, performance and safety of the ‘blade’ batteries being used by carmakers such as BYD on a large scale is getting people to take notice. Natural graphite has an advantage over synthetic in these batteries, which UBS believes could see natural graphite usage in anodes increase from 30% to 50% share over the next seven years.
According to Benchmark Mineral Intelligence[ii], a further 97 new graphite mines producing an average of 56,000tpa will be required by 2035 to keep up with demand. The increased demand is not expected to go away after that, with Wood Mackenzie indicating a 1400% increase in demand between 2020 and 2050.
All this points to an upgraded long term price forecast by UBS for natural graphite (-100 mesh) from US$570/t today to US$850/t, a whopping 30% upside.
For other critical minerals, the evidence points to increased demand, with most of the current or planned battery chemistries containing lithium, nickel and copper. Whilst new types such as LFPs might have a limiting effect of nickel and copper, there is enough demand across the board to put heavy stress on existing supplies.
[i] UBS Research & Evidence Lab – Natural Graphite. APAC Focus: The Comeback Kid, 29 September 2023
[ii] https://source.benchmarkminerals.com/article/more-than-300-new-mines-required-to-meet-battery-demand-by-2035
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