Reasons to think about the end of the bull market linked to battery metals

In the last two years, the demand for battery materials has increased as sales of electric vehicles have increased. This is the main adjustment factor and has motivated the upward trend of cobalt, lithium and nickel.

The demand outlook for batteries, combined with their clear ESG benefits, helped trigger the start of a surge in supply capex since the late 2010s that was only accelerated by the political response to COVID.

If we don’t look at raw materials, cobalt has been mired in a supply shortage exacerbated by the disruption of supply chains. amid an unprecedented surge in global demand saw the cobalt market run a significant shortfall last year of 11% of global supply. If in mid-2022 cobalt was trading at $30,000 per ton, today it is at $74,000.

Similarly, in lithium, we start from a significant tightening trend last year, which results in the same overall global supply shortfall as cobalt, causing prices to rise. 200% lithium prices in the last year to 53,982 dollars per ton. The rise is greater when compared to the year 2022, which was at $5,538 on average.

When it comes to nickel, the significant shortfall and rapidly rising prices in the nickel market over the past 12 months have reflected increased demand for batteries, falling/low stocks and unprepared supply .

Nickel has nearly tripled in price in the last two years and is now below the $29,000 tonne level.returning to where the market closed on March 4, the last trading day after record low trading volumes triggered a liquidity crisis for one of the most crucial industrial commodities.

In early March, their prices briefly exceeded the $100,000 mark amid a sharp contraction in short positions as China’s Tsingshan Holding Group, one of the world’s top producers, bought large amounts to hedge its short bets on the metal

The investments made stimulate supply that will cause prices to fall

But a downward trend of these three raw materials is expected in the next two years. And those projections is not based on a negative view of demand prospects.

Moreover, a strong growth trend in demand for electric vehicles is expected, supported by increasingly favorable policy around the world, led by Europe and China. In fact, estimates show that the demand for batteries for energy storage and electric vehicles it will multiply by ten to reach 3,453 GWh in 2030, compared to 348 GWh in 2022.

The prospect of rapid growth in demand from the electric vehicle sector has spurred further investment in battery metal supply and past shortfalls will be narrowed: supply will grow more than demandwhich would cause the prices of these raw materials to fall in the next two years.

This year it is already estimated that the cobalt market will face a smaller deficit, reflecting the impact of car manufacturers reducing the cobalt content in their batteries, as well as the strongest trends in supply. The greater volatility of prices would lead this metal to a fall of 40% in two years. Coupled with this, concerns about the cobalt supply chain have begun to convince battery manufacturers to move away from cobalt-rich batteries.

Lithium plays the most important role in this trend, with an average annual increase in supply of just over 30% between 2022 and 2025, reflecting the acceleration of new projects in Australia and China, especially in Chile. Projected prices for two years estimate a drop of 80% to 11,000 dollars per ton.

Nickel will face battery supply shortages for the rest of the yearbut early on before Indonesia’s medium-term chemical supply reacts and shortages pick up by the middle of the decade.

Nickel’s near-term stiffness will morph into a softer trajectory from 2023, making a 12% drop two years out projected. This reflects a strong growth trend in the supply of chemical products, as well as in the conversion capacitywhich allows the transition from low-purity class 2 nickel -used in stainless steel- to high-purity class 1 nickel.

Therefore, between 2022 and 2025, it is expected that the supply of lithium increases by an average of 33% per year, that of cobalt by 14% and that of nickel by 8% per yearbut the demand growth rates are 27%, 11% and 7% per year, respectively, all of them lower than the supply rates.

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