Given the rapid development of the lithium-ion (Li-ion) battery industry, analysts are predicting that industry requirements for lithium and graphite could increase five-fold within the next decade while other metals such as nickel and cobalt are expected to increase nine-fold and four-fold, respectively, reflecting changes in cathode chemistry, according to a new report from Roskill.

There is now a significant wave of interest in battery raw material supply security, mainly from Asia, to underpin the growth of Li-ion battery production over the next decade. At least 12 recorded lithium and six cobalt transactions have been closed between downstream manufacturers and mining companies since 2016, signalling a changing trend in procurement strategy.

With an increasing amount of Li-ion battery raw material refining and processing centred in China, and it being front-and-center of Li-ion demand growth, Chinese Li-ion value chain participants have turned to Australia, Africa and South America to secure the feedstock necessary for their downstream requirements.

While some cathode manufacturers, battery makers, and even auto OEMs, closed or tried to close several lithium supply deals in 2017, cobalt- and nickel-related transactions seem to be taking over in 2018, perhaps with the realization that future cobalt and nickel supply is not as secure as lithium and graphite.

The recent spree of deals by Korean companies suggests they are now becoming aware, and while Japan has only dabbled to-date it may be next, meanwhile European automakers have been hot on raw material PR but have yet to strike an agreement.

Cobalt takes center stage. In 2016, the procurement rush started with several lithium projects—BYD’s deal with Qinghai Salk Lake Industry Group, followed by the US$32-million deal between battery maker Optimum Nano and Australian lithium mine developer Altura.

The year 2017 saw deals between Great Wall and Pilbara Minerals, and Ganfeng Lithium’s US$172-million financing of Lithium Americas. Since the beginning of 2018, other players such as cathode manufacturer Posco and Japan’s SoftBank group (earlier post) struck deals with Pilbara Minerals and Nemaska Lithium, respectively.

In cobalt, LG Chem announced in April 2018 the creation of two joint ventures with Huayou Cobalt for the manufacturing of cobalt precursor and cathode materials. (Earlier post.) While this deal might look remarkably similar to one between Huayou Cobalt and South Korea’s state-owned Posco last January, the quantities of material involved in the latter agreements with LG Chem are substantially higher. The Posco deal can be considered a mere feedstock diversification, but in the case of LG Chem, the JV will involve the supply of 40,000 tpy of material, pointing towards the strategic importance of this deal for the Korean battery producer.

Under the deal, LG Chem will raise around US$225 million by 2020 to set up the precursor and cathode JVs in China. One week after the LG Chem and Huayou Cobalt announcement, the investment arm of LG Holdings, LG International, confirmed its partnership with Cobalt Blue by raising US$7.8 million aimed at sourcing long-term supplies of battery-grade cobalt from the Thackaringa cobalt project in New South Wales, Australia.

In March 2018, Chinese high-tech recycling giant GEM signed a three-year cobalt supply agreement with Swiss miner Glencore. The deal will involve the supply of 52,800 tonnes of cobalt hydroxide. Despite being the world’s largest battery recycler, GEM plans by 2019 to achieve further integration; it is targeting a 20 ktpy Li-ion battery materials project, an additional 60 ktpy precursor materials project and a 30 ktpy cathode materials project. These projects will enable GEM to become a leading supplier of cathode materials to Chinese battery makers.

SK innovations, another South Korean large-sized battery manufacturer, signed a cobalt and nickel offtake agreement in March 2018 with Australian Mines, which is developing the Sconi project in Queensland. The deal will involve the supply of 12,000 tpy of cobalt sulfate and 60,000 tpy of nickel sulfate. While LG Chem also manufactures small-sized batteries for the portable electronics industry besides its automotive battery business, SK innovations solely focuses on automotive batteries. Cobalt and nickel will be fed into the nickel-based Li-ion battery operations in Korea and the upcoming Hungarian plant.

Raw material deals to continue. In the years to come more supply agreements between downstream and upstream companies are to be expected, with urgency on the cobalt side, Roskill said. Given the price volatility of this material and its impact on end-products costs, cobalt constitutes a risk factor that most Li-ion stakeholders will try to mitigate by closing long-term deals with miners.

According to Roskill estimates, the shift from NCM 6:2:2 to NCM 8:1:1 realizes a 20% cost reduction at the cathode-level, because of the higher specific use of lower-priced nickel, but the switch could be prolonged while performance and safety concerns are overcome. Either way, more than 1.6 million plug-in cars are expected to hit the road in 2018, with another 4 million by 2020 and more than 15 million by 2025 according to automakers’ announcements, along with the considerable demand for raw materials that these figures will bring.

Roskill’s Cobalt: Global Industry, Markets and Outlook report will be published in May 2018 providing a ten-year outlook for supply, demand and prices. Roskill’s ten-year outlook report for the lithium-ion batteries industry, Lithium-ion Batteries: Market Development & Raw Materials, was published in March 2018.