“Green” stimulus is the order of the day as economies around the world commit to building back greener post-COVID-19. This has seen a dramatic rise in the number of countries that are affirming their carbon neutrality targets, but how do they go about meeting these targets?
Through the introduction of clean energy and transportation technologies, which rely on a number of key commodities including copper and cobalt for their manufacture. But the more ambitious climate targets become, the more minerals and metals will be needed to support this. CHANTELLE KOTZE explores the important question of whether battery metals supply will be able to keep up with increasing demand.
According to business intelligence firm CRU, both the copper and cobalt markets can expect ongoing demand strength as renewable energy and electro-mobility agendas accelerate over the forecasted period until 2025. Despite short-term price fluctuations, a more balanced pricing scenario can be expected over this period as markets rebalance.
Charlie Durant, CRU research manager, base metals, says that China had a big impact on copper demand in 2020, changing the annual consumption pattern altogether. Despite demand pressure in Q1, the Chinese economy recovered incredibly fast from the COVID-19 pandemic, and the Chinese copper market saw growth last year. Despite this sharp recovery, global demand was down 3% in 2020 due to falls elsewhere.
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This year, CRU expects demand to bounce back at about 7% growth ex-China. However, China will continue to drive copper demand, and is currently consuming over 50% of the global total, says Durant, noting that strong demand is expected from China during 2021, spurred mainly by continued investment-led growth and driven less by the consumer-led economy envisioned for the future.
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“That said, demand for copper is returning, driven by the electric vehicle (EV) and renewable energy markets,” says Durant. While these new growth markets only constitute a relatively small portion (5%) of the overall copper market, they are expected to breach 1 Mtpa in 2021 and are expected to see double digit growth rates in future, ultimately compensating from any slowing demand from the construction or utility sectors in future.
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On the copper supply side, Hamish Sampson, CRU senior analyst, base metals says that mine production was most impacted during the second quarter of 2020 as several of the key producing regions in South America; including Peru, Panama and Mexico, went into lockdown. Importantly, Chile, the world’s largest copper producer, remained largely unaffected, which halted any dramatic drop in supply.
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“Despite initial expectations of a 5% drop in the global mine production, we saw a really strong recovery in the second half of the year, which kept supply relatively flat year-on-year,” says Sampson.
This year, CRU expects mine output to increase by almost 3%, with producers buoyed on by the copper price. Moreover, growth is forecast to be driven by a handful of key projects starting up this year including Kamoa in the DRC and Khoemacau in Botswana. However, the firm anticipates that there could be some lingering disruptions while the pandemic rumbles on, compounded by a turbulent political and social calendar in Chile and Peru this year, which is a cause for concern.
There are several committed projects like Quellaveco and QB2 in South America that will continue to drive growth over the short term. However, a supply gap of around 5 Mt starts to open up by 2030. Fortunately, there is a large pool of uncommitted projects that have the potential to come online and fill this gap.
Sampson is therefore reasonably confident that supply should be able to keep up with demand, however, “if too many projects get bogged down in the feasibility and permitting stages, compounded by increased scrutiny surrounding environmental, social and governance considerations, then we could see sizeable deficits over the next decade to meet future demand growth.”
Should these deficits in fact materialise and persist for too long, the concern surrounding copper substitution may surface in future. The reuse of copper scrap, in this case, will form a really important part of the copper supply chain – one which will grow on the back on continued copper demand – while also serving as a mechanism to keep the market in check as demand increases.
According to George Heppel, CRU senior consultant, there were reasons to be concerned about the cobalt market when the COVID-19 pandemic struck with looming fears around a COVID-19-induced global recession, rising consumer debt and the affordability of EVs and vehicle OEMs scaling back their EV plans to protect their balance sheets in the wake of the recession.
In practice, the exact opposite was true. The economic impacts of the COVID-19 pandemic resulted in a massive push by policy-makers towards a “green recovery”, which has consequently led to an explosion in EV sales off the back of high EV subsidy policies in Europe. In Europe alone, the UK, France, Netherlands, Sweden and Norway are responsible for around two thirds of total vehicle sales on the continent, and four of these five countries introduced new EV subsidy policies in 2020, Heppel points out.
“The push towards a green recovery is clear when considering the number of global EV sales, currently tracking at over 3 million units at the start of 2021. Moreover, major vehicle manufacturers are investing in battery technology and committing to be in part or fully electric by the end of the decade – all of which has resulted in a strong growth story for battery metals as a whole, from which cobalt too has benefitted,” says Heppel. The cobalt price of today of around US$25/lb is testament to the increase in demand as a result of the policies and vehicle OEM pledges, he adds.
Going forward, there is a very material concern around long-term shortages for cobalt, says Heppel, noting a supply crunch from the early to mid-2020s, on the back of exceptionally high demand over the past 12 months. This could potentially see new supply come from high-pressure acid leaching plants in Indonesia, cobalt recycling, an expansion in development of the Chinese-owned copper/cobalt assets in the DRC or a lot more supply from the artisanal mining sector, also in the DRC.
Artisanal mining, which is often quick to respond to increases in demand, has in the past accounted for as much as a third of total cobalt production in the DRC. While, cobalt is the battery metal at the highest risk of being exploited in ways that damage the health of people and the environment, the looming supply crunch expected over the next four years and increasing cobalt prices, could see artisanal miners respond.
The work being done in the DRC to formalise the artisanal mining sector – specifically the partnership between commodities trading company Trafigura, not-for-profit organisation PACT at copper/cobalt producer Chemaf’s Mutoshi mine in the DRC – is a step in the right direction in improving legal transparency and economic livelihoods for the thousands of local residents that rely on artisanal mining.
Given the recent success of this pilot project, it could be used as a business blueprint for the entire Katanga region, which could unlock an additional source of cobalt supply, says Heppel, noting that formalised artisanal mining of about 40 tpa – 50 tpa of cobalt could act as a mechanism to stabilise cobalt prices during times of prevailing demand.
CRU is of the view that there will need to be investment in new supply over the next few years in order to prevent significant market tightness in the early to mid-2020s, and it is unclear at this point where it will come from as the group hasn’t seen any investment into the possible new supply channels as yet.
Heppel warns of rapidly changing battery chemistries and the downside risk to cobalt demand that this may have. The is very strong focus emerging from vehicle manufacturers toward lithium iron phosphate (LFP) batteries in the low-cost EV vehicle segment, which has the potential to displace cobalt demand in future, depending on consumer demand for lower cost EVs. Moreover, Volkswagen’s decision to produce high-manganese cells for the bulk of their EVs may also mean lower cobalt content, requirements than that needed in lithium nickel manganese cobalt (NMC) batteries.
While the demand story for cobalt remains strong, the risk of changing battery chemistries remains a risk to longer-term cobalt demand, Heppel concludes.