Monday, 13 November 2023 | 35 | 19:15
Daisy Jennings-Gray from Benchmark Minerals Intelligence joins host Ed Coyne for a deep dive into today’s battery metals markets.
Ed Coyne: Hello and welcome to Sprott Radio. I'm your host, Ed Coyne, Senior Managing Partner at Sprott Asset Management. I'm pleased today to welcome Daisy Jennings-Gray, Senior Price Analyst at Benchmark Minerals Intelligence. Daisy, thank you for joining Sprott Radio.
Daisy Jennings-Gray: Thank you, Ed. Great to be with you today.
Ed Coyne: Daisy, before we dive into today's topic, battery metals, please tell our listeners a bit about yourself and the work you and your team do at Benchmark Mineral Intelligence.
Daisy Jennings-Gray: Sure. Benchmark was founded in 2014 as a price reporting agency and has become the leading source of supply chain intelligence in the lithium-ion battery industry. We provide an array of information and knowledge across the supply chain and the leading industry reference prices for battery raw materials and components. That's lithium, graphite, nickel, cobalt, cathodes, anodes, and battery cells.
Alongside that market intelligence, we run a number of events across the year that bring the whole lithium-ion battery supply chain together. Benchmark offers a unique opportunity to have everyone from upstream to downstream – miners, refiners, cell producers, and automakers — in the same room discussing the developments in the lithium space. I sit on Benchmark's price and data team and focus on our lithium price reporting. I oversee the lithium price assessment that we put out for subscribers, and I've been working with the company for about two and a half years now.
I've had the opportunity to build a network of contacts active in the lithium supply chain, speaking to those players and gathering market insights and intelligence to provide accurate and independent pricing in the lithium and battery metals space. All the price assessments we put out are IOSCO-assured, meaning they meet a certain set of regulations to act as independent and trustworthy reference prices for battery raw materials and bring that transparency to what have historically been very, very opaque markets.
Ed Coyne: Focusing on lithium, you've had your hands full because it's been a largely positive but rollercoaster ride. With you focusing on the data and pricing side of the equation, what have been some of the other milestones you have seen in this space as you continue to get deeper into the battery markets?
Daisy Jennings-Gray: You've already hinted that it's been a roller coaster ride. The milestones at the forefront of all that are some of the record-high prices we've seen in the battery metal space over the last couple of years. We saw lithium spot prices hit $80,000 per tonne, above and beyond anything prices have ever hit. We've seen an awful lot of volatility across all the battery metals, not only lithium but nickel as well, and a fair amount of movement in cobalt, just as a result of how quickly the demand side is developing in this space and how quickly the lithium-ion battery market is evolving.
We've also seen a shift in how the downstream procure their raw materials. This is what automakers and cell manufacturers are focusing on now to ensure the supply of these critical raw materials. The way that supply contracts and the pricing of these contracts have evolved massively over the last couple of years. Pricing for critical raw materials and battery critical raw materials, even just two or three years ago, was often a fixed price level for maybe a year or so.
Now we see that contracting structure change massively, and prices for the vast majority of material delivered to key downstream players are tied directly to what's happening in the spot market. That means the downstream has been more exposed to supply and demand crunches than we've seen in the battery raw materials space.
Ed Coyne: When you talk about downstream players, give us an example of a couple of the big ones our listeners may be familiar with.
Daisy Jennings-Gray: Any key automakers out there looking to electrify their fleet, so the Fords, the GMs, the Teslas, and the key players in China as well. There are lesser-known automakers in maybe the Western world, so the BYD Motors, the XPengs, and companies like that. Then the cell manufacturers, which historically have been dominated by China, so the likes of Contemporary Amperex Technology Co., Limited, and some of the other markets in Asia, so the Panasonic and the likes of that.
Ed Coyne: Everyone has their hand up basically for supply.
Daisy Jennings-Gray: Yes.
Ed Coyne: Speaking of China, there seems to be a scorecard everyone is looking at. Where do the U.S. and Europe stand relative to China on the production side with these gigafactories and so forth? What's the health of China, the U.S. and Europe? If you don't mind, walk us through each one of those.
Daisy Jennings-Gray: Sure. It's well-known in the battery space that China is ahead of the game and was the first player in the lithium-ion battery space. That means there's dominance there on the downstream, and the amount of cell capacity and cathode and anode production in China significantly dominates any other region globally. That trend also follows upstream. Probably 60% to 65% of lithium is refined in China for something like lithium. Most of it is mined outside China — in South America and Australia.
While some refining does happen in those regions, particularly South America, a lot of that unprocessed material goes to China for further refining to battery quality material. Lithium certainly isn't the worst offender, for want of a better phrase. Something like graphite, for example, 90%, maybe even 95% of that supply chain is dominated by China. The majority of the mining of natural flake graphite happens there. Even its synthetic counterpart, which is produced from oil and coal derivatives, is also dominated by China.
China has a grasp on the whole supply chain from all the way upstream to all the way downstream. Their automakers are starting to introduce themselves to the Western world as well. We've seen BYD Motors push its position in Europe and start to dominate the market share for automakers in the Western world. I think Europe and the U.S. are becoming more switched to this trend. In the U.S., we've seen the Inflation Reduction Act, which has put in place a lot of incentives to bring more of this mining, refining and manufacturing onshore into a domestic supply chain in the U.S. wider North America and the U.S.'s free trade agreement partners.
There is movement toward insulating Western economies from this dominance in China, but China is well ahead of the game, and there will need to be a lot of incentives in place. There will also have to be a lot of leaning on the expertise in China to get this thing off the ground in the markets that haven't had to do it before.
Ed Coyne: It seems like all hands need to be on deck. I was reading one of your research pieces recently on LinkedIn. Anyone looking to get more information should certainly follow you because I just spent 10 minutes there and got a wealth of information. You talk a lot about supply versus demand and what the current supply is today in the market in 2023. You look out to 2035. There seems to be a massive disconnect there. How in the world are we going to close that gap?
Daisy Jennings-Gray: It's certainly set to be a challenge. For lithium, for example, the scale we're talking about is phenomenal. Global demand for lithium in 2020 was maybe around 300,000 tonnes. In 2030, benchmarks see global demand for lithium will be about three million tonnes. There's huge growth in demand for these critical raw materials, and it's the case for all of them, not just lithium. The challenge is that the supply of these critical raw materials isn't set to come online at the same pace that demand is growing. We must look at a constrained supply picture regarding the downstream now, and lithium is the constraining factor for now.
The auto and cell industries can only grow at the rate of its slowest driver; in this case, that's the lithium supply. Essentially, a lot of the demand we see if every automaker wants to achieve its electrification goals won't be met based on current raw material supply modeling. The reason is that bringing battery raw material supply online is incredibly difficult. Not every raw material is made equally, and the type and the quality of battery raw materials that you need to be qualified with cathode and cell manufacturers is very particular, and it has to be catered to separately for each consumer.
You have to qualify those volumes over a period of maybe a year or longer, and then you have to ensure that you will supply that consistently to them. While there may be announcements out there for hundreds of thousands of tonnes due to come online, you must first consider the success of that project in the first place. We see a lot of delays in the lithium space and all of the other critical battery raw materials. Then, you have to consider if and when those volumes do come online. Can they be delivered to the customer at the quality and consistency that that cathode or cell manufacturer needs to be able to operate?
Ed Coyne: You see a lot of research papers on the refinement, production and where gigafactories are being built here and abroad. There isn't much conversation around pulling the raw material out of the ground. Can you give us some insight into the health of the mines? Where they're being produced? Are governments being supportive? What's happening in the mining world? Because it doesn't seem like you can get much information on that side of the equation.
Daisy Jennings-Gray: We’ve heard Elon Musk claim that lithium is everywhere, and he's not wrong. It is one of the most common elements on the planet, but where lithium is in economically extractable volumes is a much smaller pool. Being able to extract that lithium economically and to the quality that is needed by the battery-supply chain is incredibly challenging.
South America has always dominated that space on the lithium side. Chile and Argentina are also catching up on that supply front from brine-based sources. Essentially, you evaporate the lithium out of brine water in the ground. Australia is the other key source on the flip side, which is more traditional hard rock mining, usually of a mineral called spodumene. Other lithium-bearing minerals are starting to be extracted, largely domestically in China and Africa. Lipidolite is one that I think people here discussed a lot.
The challenge is finding these kinds of economic resources and bringing them to market on time. We always see delays to these timelines. We also see an increasing push for these projects to integrate vertically. The miners don't want to mine anymore. They want to try and bring that value downstream and refine it into the lithium chemicals, but many of these mining companies don't have that experience. A traditional Australian mining company hasn't been a specialty chemical producer in the past, and that is really where the difficulty lies.
The case is the same with all of the battery raw materials. Getting it out of the ground is already a challenge and an incredibly tough job. Getting the financing in place to develop these projects is a challenge. Then, deciding how to capture value, do you sell that unprocessed feedstock? Do you get it refined ultimately in China, or do you try to develop that downstream processing capacity domestically, wherever your project is based, but accept that that is an additional step to what is already very difficult to do?
Ed Coyne: You brought up financing, and I think from an investment standpoint, a lot of our listeners are going to ask, "How do I participate in this? Do I own lithium? Do I own cobalt? Do I own the miners?" What are some of the key considerations an investor should consider or look at to make battery metals part of their portfolio? What risks and opportunities do you see in the market today?
Daisy Jennings-Gray: There's much talk around new and direct lithium extraction technologies in the context of lithium. We've not seen any of these technologies proven commercially, and scaling them up beyond the lab and pilot scales is challenging. Ultimately, the supply that will most likely come to market first will be those from traditional sources, such as hard rock and traditional evaporation ponds often in South America.
Regarding realistic timelines, your average critical raw materials project, not only for lithium but also for nickel, cobalt and graphite, takes much longer to come online than is often claimed. You’re looking at around a decade for a greenfield project, maybe a little bit less for a brownfield project if you're bringing a mine that was perhaps used for something else or has been taken offline. The gap in the timelines for the upstream and the downstream is huge. We call it the raw material disconnect at Benchmark, which is this idea that it takes maybe two years to build a new gigafactory or a cathode manufacturing plant. Still, bringing one of these critical raw material mines online takes 5, 10, and often more years.
Ambitious timelines are something to be realistic about, as well as considering the qualification period I mentioned. Even if the project comes online and is successful, you're looking at another one and maybe even two years for that volume to then be qualified with any offtake partners. Even if you have a project that's nearly all fully financed and most of the supply has been put under offtake, and even if those offtakers are household names, it will take some time for that material to end up in their cells and ultimately in their vehicles.
Ed Coyne: What are you seeing from a demand standpoint in the battery technology outside of the electric vehicles? Who else raises their hand, saying, "Hey, we need this also?" What are you seeing out there?
Daisy Jennings-Gray: Energy storage is the key one. This year, that's where we've probably seen the most short-term support for demand. In China, the stationary storage market has taken off. That's where we've heard a lot more positive sentiment regarding demand. There's been some uncertainty around the Chinese EV market this year. That is why we have seen some of these critical raw material prices come down across 2023 so far. The sector from which we have seen a bit more of a bullish attitude has been the stationary energy storage sector.
It's important to note that lithium-ion batteries are everywhere. Consumer electronics, power tools, laptops, and iPhones have lithium-ion batteries. We saw a massive surge in demand for those devices during the COVID-19 pandemic. For example, everyone wanted the new Switch, and everyone was bored and bought a new iPhone.
We saw that market supported during the pandemic. Not only are there EVs, but I think there are the everyday electronics that everyone forgets about. These batteries are really in everything that we use day to day. Even if you don't own a Tesla, you still use a lithium-ion battery when you send an email. That demand isn't going anywhere. That demand has been very comfortable over the last 5, 10 years or so, and this EV market and the energy storage market have massively boosted demand over the next decade.
Ed Coyne: Daisy, I appreciate you taking the time today to join us on Sprott Radio. This has been incredibly informative. Hopefully, we can have you on again and check back in six months or a year to see where we are as the world evolves. Thanks again for joining us today.
Daisy Jennings-Gray: Thanks, Ed. Good to join today.
Ed Coyne: Once again, thank you for joining us. I'm your host, Ed Coyne. Thank you all for listening to Sprott Radio.
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