Metals Behind EV Revolution to Resume Volatile Rally - Again

(Bloomberg) -- Battery metals are set to rebound this year as an electric-vehicle boom is bolstered by post-pandemic push for a green economic recovery.

U.S. President-elect Joe Biden has indicated the sector could get a boost, while China wants new energy vehicles to account for about 20% of total new car sales by 2025. Germany has extended subsidies on EVs for an extra four years, and the U.K. will ban sales of new petrol and diesel cars from 2030.

The markets for metals such as lithium and cobalt, which soared in 2018 before slumping on concerns about oversupply, will be underpinned by a step change in battery demand. Global EV sales are projected to surge 60% this year, according to BloombergNEF.

“Now it’s much more real,” Aleksandr Khodov, lead analyst for nickel and cobalt at Trafigura Group, said in a phone interview. “We’re not talking about hundreds of thousands of electric vehicles anymore, we’re talking about more than 5 million in 2021.”

Another tailwind for lithium, cobalt and nickel comes as further stimulus is expected to fuel inflation, boosting demand for hard assets like commodities. The reflation and weaker dollar trades mean it’s no longer just an EV story, according to Trafigura, the world’s No. 2 metals trader.

BloombergNEF expects tight markets for lithium, battery-grade nickel, and cobalt to drive prices higher this year, but not to levels seen in 2018.

The tentative rally in key battery ingredient lithium could continue as demand strengthens, with stocking along China’s EV supply chain, according to Citigroup Inc. The soft silvery-white metal should be a “clear winner,” said David Merriam, manager of EV and battery material research at commodities consultancy Roskill.

“All battery technologies benefit lithium demand,” he said. “Tight supply of quality battery-grade lithium compounds is also expected to see a robust price recovery for contract prices, accelerating toward the end of 2021.”

Cobalt Rebound

A market deficit could see cobalt extend gains over the past six weeks. Shipments from the Democratic Republic of Congo via South African ports risk being disrupted by a resurgence in Covid-19.

Cobalt should also benefit from a rebound in the aerospace sector, where the metal is used in jet engine alloys, according to Stephen Gill, managing partner at Pala Investments Ltd., a mining investment company. The industry was hammered after the pandemic curbed foreign travel.

“We’re at an inflection point in cobalt, which is going to continue to move rapidly when we see aerospace and electric vehicles firing at full capacity,” Gill said.

Nickel Back

Nickel has surged more than 60% from a low in March as its long-term importance to the battery industry is complemented by demand from the stainless steel sector. Tesla Inc.’s Chief Executive Officer Elon Musk has said the metal will play a greater role in the company’s batteries, and pleaded with miners to produce more.

“We’ve seen a lot of investment flows into nickel due to the growing importance of the battery sector,” said Trafigura’s Khodov. “We are looking at a very substantial deficit in the long term.”

Still, in the short term, BNEF sees a price correction as the market comes back into balance this year.

©2021 Bloomberg L.P.