Battery Metals - A Nickel for Your Thoughts

the world for analysis. The meteorite is mostly iron and nickel, indicating that it was likely part of the core of a doomed planet that got smashed by some other planet or moon or asteroid, and after billions of years in the asteroid belt, it made its way to Australia. So why was it in the news? Well, good question. So some research at cal Tech recently found that it contains a mineral not previously found in nature FE five C two,

a kind of iron carbide. So apparently there are five hundred to six hundred thousand minerals discovered or created in the lab, but less than six thousand or found in nature. This is a new one and only when a mineral is found in nature, did they get to name it? So they got to name this one, and it's called ed Scotite after this cosmo chemist. Yes, that's a thing at the University of Hawaii named ed Scott So ed Scottite. Very cool. Yeah right, that was my first thought too.

But what could this thing be used for? What do you think? Batteries? Batteries? Sure, I don't know about that, but you know, it turns out that nothing really as far as I can tell. But it is a byproduct of iron smelting. So it is. It exists out there in the world, but it's just not in nature except in this little meteorite. Okay, So now that we're all thinking about metals, let's get into today's topic. Metals that

can be used for stuff. I don't know about you, Danta, but I can't really see a way around metals demand. It seems like we always need them. That may be true in a high carbon or low carbon economy. There is a need for metals cobalt, lithium, nickel for batteries, rare earths for all kinds of electronics, steel for wind turbines and solar panels, and the list goes on. Today, we'll be talking with Sophie lou who leads b enufs

medals analysis and will focus on the battery metals. We'll get into the supply and demand for metals used in battery production and some of the very real challenges in getting the stuff out of the ground. Our conversation is based on a report titled two h nineteen Battery Metals Outlook, Demand Realities. B NF users can get this report on BNF dot com, the BNF mobile app, or on the

Bloomberg terminal at b NF go. Please note that BNF does not provide investment or strategy advice, and you can hear our full disclaimer at the end of the show. I'm Dana Perkins and I'm Mark Taylor and you're listening to Switch on the b NF podcast. Hi, Sophie, thank you for joining us today. Good to be here. So this market outlook is about the battery metals. What are the main battery medals we should be worried about? Are

concerned with? Sure um? In our outlook we focus primarily on lithium, cobalt and nickel um and when we do the supply and demand forecast where these big three. We do focus on the battery grade material that has produced for these three commodities. We also do look a little bit as some of the other medals that go into lithium ion batteries, so this would include manganese, graphite, copper, aluminum, um, but in general though the big three are lithium, cobalt,

and nickel. This report is half yearly, But how far out do we look regarding the sub blind demand once UM our demand forecast goes out to and then our supply forecast goes out to at a D risk level, we do have a view out to twenty thirty, but we normally don't like to take a de wrist view on each of the assets UH after because of the lack of information. So it's mostly a short to medium

term outlook. It's basically from now until in the nearer term what's going to be in short supply UH in the near term, So right now, it doesn't look like we have any major shortages pendent pending UM for any of the battery materials, So lithium, whether it be hydroxide or carbonate, are roughly in balance for twenty nine team UM and then UH cobalt is actually a little bit oversupplied, and then nickel, specifically nickel sulfate that goes into batteries

is currently, according to our views, still supplied. But you go a little bit further out to about three and that's really when we start experiencing some potential shortages in um um, cobalt, and nickel, and then liftingum hydroxide UM maybe even a little bit earlier because of the potential

bottleneck in conversion capacity. What's the reason for the shortage and cobalt supply UM The shortage and cobalt supply really has more to do with the fact that sort of insecurity and instability in the Congo has impacted the DRC.

Excuse me, the Democratic Republic Congo has sort of impacted UM the larger miners um development plans for new capacity expansion inside of that market and has actually caused caused them to furlough some existing capacity in preparation for sort of reassessing because there they have to install the new processing equipment as well as they have to sort of reassess the impact of the new UH mining code that came into effect last year in the Congo and how

that impacts the economics of the mining for cobalt in that market, particularly since cobalt prices have come down quite a bit. That's like, that's really the bottleneck going into four but in the nearer nearer term, so even just like in the next year or so, we could even potentially experience a UM, a sudden shortfall in the cobalt market. If anything UM these stabilizing happens in that specific country, and UM that may cause or disrupt may cause disruptions

to the outflow of cobalt from that market. Uh no, no, this is not trade. This is basically just the congo UM experiencing political instability. Because so they just got a new president that just came in January. There's a lot of UM. There's still he has not fully consolidated his power. There's still a lot of question as to whether or not his incumbent retains a decent amount of control over

the market. In the last week or so, we've been hearing news about you know, the UM, the national government sending in troops to quote unquote protect UM, the mining assets UM and to essentially push away artisanal miners, so small scale miners from UM mining along the outskirts of the big minds for Glencore and for chinamally and for other companies. To clarifying questions, I think it just touched on the first one is is DRC the main source of co op in the world? And to who are

the majors that you talked about in that market? You mentioned Glencore and and an others. Are there others? Yes? Um so, over seventy of the cobalt resource that is mined um is mine from from the congo. Um so seventy percent of the refined sorry, the seventy percent of

the bind resource comes from the congo. And then within the congo, the biggest market shareholders really are Chinnamali, Glencore, Eurasian Resources Group UM y r G. I think they changed their name now, and UM there's a few other companies kind of throughout that also owned things like KEMAF

and others. UM. The Chinese companies, if you agree with them, altogether own something close to a half if not more, of the cobalt resource inside of the congo, and then their dominance of the market share of cobalt increases significantly when you then go to the next up, which is

the refinery. So cobal is exported from Congo and a lot of it is exported back into China, where many of the Chinese companies, particularly Hawaio China, Hawaio UM and then Um Dean Chron and a few other companies, they are some of the biggest refineries refiners of cobalt in the world. While we're talking about China, I'm thinking, you know, I've read here in your note that of the batteries

in the world are actually manufactured in China. And then I think about the trade boards that are going on right now between the US and China. Is that going to pose a problem to the battery market in the US? UM, I don't think so. So we looked at a little bit at the the trade in critical minerals and materials that go into the battery supply chain between the U s and China, and actually the direct trade and raw

materials is relatively low. There are a few things that might be potentially subject to higher tariffs, but um, at the end of the day, there's actually not as much trade in the material supply chain between the two countries.

Usually material that is mined in a third country moved to China to be refined is then sold to a third country that is then put into a battery component which is then potentially sold to the U. S so usually their trade partners in UM, Japan and possibly even Europe where that happens the direct trade of batteries between China and the US. I think one thing we can't forget is that UM okay, so overt of the battery

supply chain is in China. That is true, right, and the battery manufacturing capacity is also over in China, But overt of battery demand will also happen in China, and so much of the batteries that are being made in China are likely to be deployed in and use applications in China. I'm not saying that they might not export some of it. Some of it might get exported, particularly to their Asia partners UM, but they're not necessarily reliant

on the US to export their batteries. Changing tracks a little bit, looking at copper, one of the things you note is that recycling copper actually uses eight less energy than mining it. Like, what what companies are actually doing this? This is the big mining companies that are actually diversifying or these complete new players and a potential opportunity for a more fragmented market. They're not the big miners actually, so the big miners usually UM don't specialize in the

recycling process. Oftentimes, the companies that are most involved in recycling of metals, including copper, but also including many other things. Uh, they're usually these specialized hydro metallurgical firms that are actually doing the refighting. So again Chinese, Japanese and creating companies and then also some companies in Europe are very specialized in this in this process and they work more like chemicals than they do UM in what we traditionally think

of as as metals mining UM. And these are the companies that have the most opportunity to gain in a world where increasingly recycling and scrap becomes a bigger part of the overall supply chain. We understand that batteries are increased singly relying upon nickel in their composition and decreasing the amount of cobalt they're actually using. Is this driven by human rights and and wanting to make that pivot or is there some other reason that the battery compositions

are changing so dramatically. It's two different reasons basically, but they're interrelated. So UM the desire or move towards higher nickel catholic chemistries is mostly UM the need to drive higher energy density in the battery packs, and higher nickel catholic chemistries generally have been are are moving in that direction. But the problem is UM in the traditional designs of higher nickel catholic chemistries, you almost always need cobalt as

a part of that. So, for instance, um Tesla's n CIA batteries require cobalt, and many of the battery makers and the automakers don't. They're not comfortable with having that much exposure to cobalt in their supply chains because cobalt is risky, not just from a reputational issue of human rights, but also just because UM. The political instability in the market that it comes from does mean that there can be occasional disruptions to the supply chain question on that.

I used to be in the industry, my cro industry, I don't know what you'd call it, of geothermal, and I had a friend in the industry who actually owned a cobalt mine or cobalt outfit in Idaho, and it was called US Cobalt. Yeah, then it bought out by um first cobalt, Now I think have they? I think so, yeah, I had a whole like Iron Creek or something it's called. Okay, Well, my question on that is, I mean, is DRC the only option for cobalt mining or are their domestic you know,

US supplies or supplies elsewhere that could be. It's a really good question actually, so um, like I said our earlier seventy of the mind, cobalt is mine in the DRC, right, but is mine outside the call the d r C. And right now the main sources of it are essentially Cuba um Morocco. Yeah, Morocco um so bo Azer is one of the oldest operating pure cobalt mines in the world. Um. And then cobalt is also produced as a byproduct um of nickel um uh production in some places in Southeast

Asia as well as Russia. So there is on Indonesia, okay, right, So there are some cobalt production outside of the d r C. And there's a lot of interest amongst junior and mid sized miners to explore for pure cobalt plays um outside of the DRC, because they believe there might be a potential premium in terms of the supply chain, supply chain premium value for non DRC cobalt, and we

see this plane out a little bit right. So you have companies like um core UM promising that they're definitely gonna have only non DRC cobalt and then therefore buying cobalt only from Glencore's production mirror Murine in Australia as well as possibly the RMAPU asset in Morocco UM and then UM. But the problem is of every single one of the major battery manufacturers or automakers like BMW all want to buy non DRC cobalt, there's not in a

cobalt in the world to do that. UM. The problem is UM cobalt prices right now are not quite high enough to really sustain the independent discovery, exploration and development of a standalone cobalt asset. You'd have to have a really insanely high concentration to be able to do that. In terms of the or grade UM and is that

what's unique about the cobalt and DRC UM. So the couple in DRC is actually produced as a byproduc of copper um, and so the DRC actually makes more money from copper than it does from cobalt, but cobalt it was really hot for a little while because or somewhere like that, because the cobalt doesn't occur in high volumes the way that in Peru. I actually, for those listening, I'm just asking because Prue has a lot of copper. Yes, Peru has a lot of copper, but cobalt doesn't always

just occur with copper. Um and it doesn't always it's not so they're not inclusive or like that. It's not a requirement to necessarily occur with copper. Sometimes occurs with nickel. It's like all rock in the earth. It kind of occurs in varying degrees. But um, the DRC does happen to be one of the best deposits in the world for both copper and cobalt in terms of the quality of the intensity of the grade um. Yeah, so it's

it's very rare to develop a pure standalone cobalt asset. Um. Most cobalt assets that are producing now are bioproducts of either copper or nickel. Bo as you're in Morocco is the own is. The only large scale, commercially producing pure cobalt play in the world is it bright blue? It's yeah, cobalt, I mean, is the mind bright blue? Oh No, I don't, I don't, I don't know, I don't know. I have to go back and look at it, look at it physically.

That given that Lee's lithium ion batteries are being used in cars and power storage and then additionally for consumer electronics that we all consume, looks like there's a lot of stuff that is actually going to rely on these batteries. Do you foresee the material prices, the metal prices going way up as this demand looks like it just almost has a limitless appetite. I think a lot of companies that are investing into new assets are betting that the

prices of these commodities will come back up. We've seen short term spikes, right, So, lithium went through a pretty high period UM just a year ago. Cobalt also just a year ago, it was quite high that came back down about really like a ten months ago. UM Nicole

is experiencing a bit of a search now. Also on the EV thesis, we're basically seeing this kind of like cascade effect where basically every time somebody who likes EV batteries discovers a new metal, they all pour their money into it, and then it surges, and then it comes back down when they realize once everybody has enough information about supply and demand. So um, I feel like in the metals industry, and this is the thing that everybody sort of talks about. There's no such thing as a

true shortage. Like we didn't stop using bronze because we ran out of bronze, right like, and this is the same thing. We didn't stop using oil because you ran out of oil. Um. There's no such thing as like a true scarcity in the sense that there isn't enough of the resource. It's always just about is the price high enough to support the development of the next incremental um tonnage that needs to come into the market to

support the future demand um. The market generally has proven to be pretty efficient in terms of pricing signals to the miners um to sort of to the resource level to basically tell everybody you need to bring this much more material up to the market to supply future demand.

In the lithium market. There's some debate about whether or not this is actually true, being because a lot of producers in the market are saying that the lithium price is too low to support a lot of the new UM material that needs to come into the market to support the future demand UM. And our view is it can it can vary like around ten thousand per ton, I think is actually still a pretty god support price UM.

But it does. It does kind of UM raise the question of there's a lot of assets that are in the supply curve right now who have not finished fundraising and UM their total costs when you include both the mining as well as the conversion capacity costs could potentially be is a little higher than what the current UM prices UM, and so there's there's a question of like, well, maybe the prices need to come back up in order

to support it. But regardless, Actually, we have a battery metals UM commodity price sensitivity tool that we've built and UM uh you know, our users can explore that tool to sort of see what the impact would be. But we looked at it and it was like, you know, prices for lithium cobalt nickel can be pretty much double UM and even even in some cases triple and the overall impact on the overall cost of the battery pack itself is you know, something to like three to five

percent maybe in terms of the fluctuation. Well, um, so the so overall, the battery packs are also becoming more

efficient about how they use materials. So the energy density is improving, but the size of the battery pack is not increasing necessarily, So you're you're being able to find new chemistries where you're exponentially increasing the energy density and performance of the battery not necessarily having to also exponentially increase the use of the usage of your battery, So you're per per ton of material results of you know, battery performance is also improving. Yeah, you're getting more out

of it. So what you're telling me is that there is enough supply to go around, and there's enough of this in the earth, but it's an issue of getting it out. We've established with the issue of the congo that you've got a lot of it in one location that can prove to be a problem depending upon who's sitting on top of it. Some of the other metals, are they in difficult locations? Are some of them under rainforests or under major cities and things that are going

to make it difficult. Potentially, are we going to reach a peak metals for some of the metals that go into the battery metal space. UM No, I don't think so right now. There's there are definitely environmental damages that might occur though, so this is actually a huge issue for a lithium UM. So Lithium is primarily produced from

two types of deposits right now. Um either spodymin which is hard rock lithium um and a lot of that is coming from Australia, or Brian, which is like salt water essentially um lithium the brine um is it we used to be traditionally the majority of lithium produced UM actually now shifting more towards boymin Um. Brian is primarily located in the solars of Latin America on like the high altitude between It's basically the lithium triangle between Argentina

Um Bolivia and Chili and UM. Those deserts, those like high altitude desserts, have an extreme scarcity of water. Now

UM solars, these salty brines, these lithium brine deposits. The producers they they obtain what they call pumping rights um to pump the salt water from this brine deposit um into surface level ponds which are then go through various levels evaporation or to turn be turned into a high enough lithium concentrate can then that can be shipped off to their plant to be converted into a lithium chemical

used for batteries. So that's the process. UM. There's been a lot of controversy over how much water being pumped from these brines because even though the water in these brines are not drinkable, so these are not humans drinking water from these things, UM, they do still um have potential relationship to the overall water table of the region. Now, it's kind of there's a lot of I'm not going

to say specifically which way we lean. We're actually writing an in depth research on this in second half of the year to look at how the lithium industry can reduce its water usage UM, but UM for for right now, though, there's controversy around this issue and UM Basically, although the lithium producers in the regions say that they're in compliance with the pumping rights that they were granted to them by the regulators of the region, activists in the regions

say that the regulators don't actually understand how this entire ecosystem is interconnected, and believe that they have allocated pumping rights that are probably too high and will eventually destroy UM, these very delicate ecosystems. UM. There's some evidence to prove that it may already be the case. Right, So the UM salars are natural homes for flamingos and other endangered species, and UM the population has diminished and and are suffering.

But there's debate as to whether or not the reason that's causing the factors causing that are because of lithium production specifically, or because UM water usage in the region is much heavier from copper um. And then also tourism actually uses a lot of water as well, So there's a lot of debate right now in that region. So this is an example of another environmental or resource level limitation on the future growth of these material supply chains.

There was a bit of movement in two nine about doing the same type of thing in the Salton Sea area in California. Company called Symbol Mining as a startup that I think they were ahead of their time price wise, right, so the price just couldn't support lithium development at that time. I heard there was kind of a kicking again last year when the price kind of spiked, But is there any more movement there? In the US, there's a lot of interest, I think. So it's around Clayton Valley um

UH in Nevada. There's there's definitely some interest in developing lithium assets inside of the US. There's also some look at California. UM. I think there's one small asset I gotta go back and look at the exact name that is producing some already, but not much. The majority of lithium that's being looked at in North America is actually in Canada. And then there's also a really interesting asset that that's going to be Spot, Yes, and Na Masca

Lithium is looking at Spot. Mean, there's a few other juniors that are looking at it there. Um. And then in Mexico, Bakanara is looking at a clay acid, a lithium clay acid that seems pretty interesting as well. Yeah, so I'd like to go back to the trade war a little bit actually, so earlier I think, um there's come there's oftentimes a misframing of the trade war question when it comes to the battery supply chain. Everybody's sort of frames. They're like, oh, I don't want to import

batteries from China. UM. But it's not about importing the batteries. It's not even about importing physical product UM. And I think a lot of regulators need to think about it in this way, which is it's about security of the supply chain, and it's about whether or not a stakeholder like China, not necessarily only China, UM may exercise control over a large enough control over UM a certain part

of the supply chain that it could become a bottleneck. So, for instance, I think a lot of the what informs the trade war now, especially when it comes to resources is UM. What happened to Japan with rare earths and China sort of quote unquote restricting the export of arth

to Japan a few years. This was like ten years ago, and so Japan had a very hard lesson learned during that time period when price suspect and all of its producers faced legitimate bottlenecks either to their overall UM supply chain. And I think UM the US and many other UM cut regions in the world, including the EU, including Australia, including Canada, who are all moving in this direction of trying to UM, consolidate UH and improve their national strategies

towards the battery supply chain. Are aware of this, and this is the security underlying security fear that drives a movement towards UM quote unquote trade war around battery supply chains. What's sad though, is that it's been framed in the context of a trade war when really it shouldn't be. It's not about restricting the flow of materials. It's about increasing the amount of the value add of that supply

chain in your own market. And the reason why I I contact UM context that like that is there's actually a lot of private sector companies involved in the sector UM and just like their Japanese and creating counterparts, are happy to invest into Europe, into the US to build

new assets. It's just like the solar industry UM. The solar industry, after they got tiribs put on them and they couldn't export PP modules to the US anymore, they went and build factories in other countries and then still we're exporting the PP modules UM and the same thing

could happen to the battery industry. But we could save the battery industry a lot of pain that the solar industry had to go through, which was ten years of trade war before were not ten years maybe five years of trade war before everybody figured out that everybody was just hurting and that it was just you know, preventing people from from getting good product um and instead focusing on maybe diversifying the location and the ownership of the

of the supply chain. It's not so, it's not just about always focusing on the physical like where this product is coming from kind of thing. Does that make sense at all? Yes, good, Sophie, thanks for joining us. Thanks for having me, It was really great. Bloombergin e F is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor it should it be construed as investment advice, investment recommendations, or a recommendation as

to an investment or other strategy. Bloomberg an e F should not be considered as information sufficient upon which to base an investment decision. Neither Bloomberg Finance LP nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording, and any liability as a result of this recording is expressly disclaimed