Lithium prices advancing; other battery ingredients consolidating
- Lithium minerals and products are now moving higher with strong momentum.
- Lithium was the laggard in the recent battery ingredients up-cycle. However, the supply chain’s surplus stocks were consumed through 2019-2020. The post pandemic demand push has now seen a much stronger and very likely persistent support for these products.
- As the Covid-19 activity restrictions subside, there will be even higher demand. This can be partly met by added supply rebound from Covid-hit Latin American sources.
- Longer term, there will be a good supply response, but it will be a struggle to expand supply quickly enough given need to obtain extraction permits and commission of new sources.
Sources: FactSet and Industry website sources
Nickel and Cobalt – completing correction – more upside
- Nickel was the early battery ingredient to move higher during 2020. After a 70% run, a pull-back was likely and aided by some supply response.
- However, nickel supply is being absorbed in part due to anticipated demand rise. This comes not just from batteries but the need for nickel in steel alloys for huge investment in the energy transition backed by investors and government support.
- We expect more upside for nickel in coming months.
- Cobalt has been correcting after a strong run. A reduction in disruptions of supply due to mines/refineries being impacted by Covid-19 restrictions has been a factor in the recent price correction. Moves to substitute cobalt for manganese or other elements may impact sentiment, but in reality substitution takes time.
- Like nickel, we expect a price floor for cobalt to soon emerge as demand broadens to include green-energy initiatives and infrastructure as well as consumer products demand.
Sources: FactSet and Industry website sources
Micro-Chip shortage – disruptive to timing not direction
- A developing issue is the lack of computer chips supply. This is severely crimping the growth in demand from assembly of automobiles and consumer appliances. The growth in demand for a range of magnets and batteries may slow leading to an easing in the tight inventories of these ingredients. This may lead hi-value commodity input prices to consolidate or possibly correct. If so, its probably an opportunity to buy.
- There are multiple initiatives to raise micro-chip production. This is driven by growing realisation of the weakness of supply chains and geo-political uncertainties.
We see added micro-chip supply going into 2022 as accelerating demand for battery and magnet ingredients. This co-incides with a huge fiscal boost from the global energy transition and expanding infrastructure spending.
