Analysis: Rising supplies of battery metals, and sluggish demand for electric vehicles worldwide, are challenging local players in the sector.
Speed bumps are starting to appear on the highway investors and the Western Australian government had been hoping would lead to riches from the production of battery metals for the electric car revolution.
Rather than continuing to rise, however, there are disturbing signs that prices for some battery metals have started to fall; and rather than a global rush to buy electric cars, there are signs that consumers are not quite ready to abandon their internal combustion engines.
A significant clue that the road ahead might not be as smooth as predicted came when the US-based mining investment specialist Resource Capital Funds withdrew from a deal to find $US30 million in debt and equity for Perth-based graphite project developer, Battery Minerals.
Failed financing agreements are not new in the risky world of mining, but what Battery Minerals said it had been told by RCF about the collapsed deal was that: “The graphite market no longer meets its investment criteria and therefore it will not seek the approval of the investment committee.”
Battery Minerals managing director David Flanagan dismissed the rejection, saying that his latest market intelligence demonstrated that the outlook for graphite prices and demand remained highly attractive.
The problems for anyone not directly involved in the specialised business of selling graphite are that: there is no common price; grades of graphite vary enormously; and there is certainly not a shortage of the material, which forms the anode (negative electrode) in rechargeable batteries, with lithium being the cathode (positive charge).
Until recently, the primary concern of battery makers was a reliable supply of high-quality graphite and lithium (and more so for cobalt), while on the flipside of the business case there were no worries about future demand for electric cars.
The world of batteries and electric cars has changed, however.
Graphite and lithium are suddenly in abundant supply, as they were always going to be because neither is a scarce element, while the rate of growth in demand for electric cars is being questioned.
Over the next six months it will be lithium that’s put to the sort of test that RCF has just applied to graphite – a test that boils down to whether all lithium projects are investment grade or whether they fall over on questions of quality and cost of production.
WA’s new lithium mines at Bald Hill, Wodgina, and two by the same name, Pilgangoora, are a major cause of what looks like a flood of the metal heading for a market showing signs of indigestion (with a lot more to come as South America producers lift output).
Events and reports that are sending a chill through the battery metal business include: significant delays in the production of Tesla’s Model 3; forecasts of a big fall in the price of lithium; and concern about whether the combination of graphite and lithium will form the basis of future generations of rechargeable batteries.
Lithium prices are declining in China, the world’s leading battery maker, and leading US investment bank Citi reckons they will continue to fall, perhaps by half, over the next five years.
Supply, however, is just one part of the lithium (and graphite) equation.
The other side is demand, and that means a careful look at electric car sales, who’s buying, and why.
Citi has a sobering view on electric cars, summed up in this provocative statement: “The future is electric, but when has always been the question”.
The current generation of electric cars does not appear to be the answer, with most consumers reluctant to commit due to their cost, concerns over the cars’ capacity to travel long distances, and the challenge of finding a place to plug in.
Of those factors, price is the ultimate arbiter, as shown in the example of what’s just happened in Norway, where government incentives have helped drive a 164 per cent uptake in electric cars.
In neighbouring Denmark, meanwhile, a reduction in incentives has led to a 60 per cent plunge in sales.
Consumers might want electric vehicles, but when it comes to buying one they also want a government handout, and once that is withdrawn, demand disappears.
And then there’s the most interesting point of all raised by Citi which is a potential shift to a new battery technology with solid-state cells replacing the current technology, which means more nickel in a battery but the possible replacement of graphite (with silicon as the anode).
More speed bumps on the battery highway might be around the next corner.
