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(Kitco News) – Phoebe O’Hara, battery materials analyst with Fastmarkets, says a new policy by China will significantly boost batteries for storage purposes, and she expects that China this year will pull ahead of the United States as the biggest ESS market.
O’Hara spoke to Kitco mid-September at the Fastmarkets European Battery Raw Materials Conference 2023 in Amsterdam, Netherlands.
Regarding EVs, she said Europe’s problem is securing the supply chain, because it does not have the mining capacity to provide feedstock. OEMs lack regulatory support from the European Union.
Interview edited for clarity.
O’Hara: I think the biggest take away for me is more upstream in the supply chain. We had an amazing panel early on yesterday, and there was a poll to the audience: it ased what’s the biggest issue with Europe? The resounding result was securing the supply chain. I think the issue there is that Europe simply doesn’t have the upstream mining capacity right now to provide feedstock. We’re seeing an explosion of gigafactories but not enough material to support those gigafactories, so the question is, where is that going to come from?
And I think also one of the big questions is around policy, you know if we compare the IRA (inflation reduction act) versus the EU, the IRA has provided massive financial incentives that have made it really lucrative for investors. By contrast in Europe, we’ve seen a lot of stick versus carrot. A lack of accountability shall we say, so there’s not really a reason as to why states have to meet the certain targets, so I think for OEMs in the space, they have their own internal targets but it’s lacking the kind of full regulatory scope to provide further support from the EU and from member states to better support them, to kind of improve their outlook for the next decade. And I think we’re going to have to see more commitments from OEMs and more investment in the upstream to ensure that they we can build this regional supply chain that everybody’s been talking about.
Kitco Mining: Is the lithium sector in a consolidation phase?
O’Hara: Lithium right now is very much in a consolidation phase, I think obviously if we look last year we saw pretty unsustainable price hikes and there were a lot of dynamics going on there that facilitated those prices, but I think what we’ve seen this year is that there’s been a lot of new supply coming to market, and a lot of demand that has also come online, but that supply has reached new peak levels particularly in China.
What we’ve also seen is overcapacity along other links of the supply chain, so overcapacity in battery production which has resulted in a lack of CAM [cathode active materials] demand and a lack of material demand, so it’s kind of eased prices down to the 200,000 yuan per tonne rate. We don’t think it’s going to sink below that simply because when we talk to some of the lepidolite producers they say that that’s kind of the cap for their production. We’ve seen already some of them turn off the taps in China, so that’s quite a clear indication to us that that’s the level the prices need to be at. We think there’s going to be a little surge in Q4 simply because obviously prices are dominated by what’s going on in the Chinese market. We think there’s going to be more demand pickup, more of a production surge to meet that demand. But I think we’ve come back to a sustainable level, and I don’t think we’re going to see the same volatility that we saw last year.
Kitco Mining: What challenges does Europe face in terms of the EV sector?
O’Hara: I think the biggest take away for me is more upstream in the supply chain. We had an amazing panel early on yesterday and there was a poll to the audience and to the panel and it said what’s the biggest issue with Europe and the resounding result was securing the supply chain. I think the issue there is that Europe simply doesn’t have the upstream mining capacity right now to provide feedstock. We’re seeing an explosion of Gigafactories but not enough material to support those Gigafactories so the question is, where is that going to come from?
And I think also one of the big questions is around policy, you know if we compare the IRA versus the EU, the IRA has provided massive financial incentives that have made it really lucrative for investors. By contrast in Europe, we’ve seen a lot of stick versus carrot. A lack of accountability shall we say, so there’s not really a reason as to why states have to meet the certain targets, so I think for OEMs in the space, they have their own internal targets but it’s lacking the kind of full regulatory scope to provide further support from the EU and from member states to better support them, to kind of improve their outlook for the next decade. And I think we’re going to have to see more commitments from OEMs and more investment in the upstream to ensure that they we can build this regional supply chain that everybody’s been talking about.
Kitco Mining: Your presentation talked about energy storage systems in China. What’s happening there?
O’Hara: I mean unbelievable policy introduced both at a national level but also at a local level, so the key policy at the national level is that for every renewable energy source that’s being introduced to the grid, 10 to 15 per cent of that capacity now has to be supported by battery. And if you think about the huge amount of renewable energy coming online in China over the next couple of years, that is a huge push for demand for batteries and we’re seeing that really play out with the eruption of Gigafactories specifically for ESS (energy storage systems) in China, which is causing more demand relationships in supply chains to build out which is super interesting. Also, at the local level we’re seeing provinces take it upon themselves to push above that 10 to 15 percent, and even go for 20 to 25, so I think there’s that classic kind of Chinese race to the top, you know which province can get that first. And as a result, we’re looking for many more batteries in the ESS market there, and we expect that China will overtake the US this year as the biggest ESS market as a result.
Kitco Mining: Headwinds for sodium-ion systems?
O’Hara: I think this year’s been a really mixed outlook for sodium-ion, you know we started the year I think when I spoke to you last in Vegas, there was a massive eruption of drama on LinkedIn and in the battery world a lot of excitement, is sodium going to take huge market share from lithium? What we’ve actually seen is as lithium prices have tanked, it’s made it much less cost-competitive for sodium to compete with your LFPs, so that’s your lithium-iron-phosphate batteries and as a result we’ve seen delays, we’ve seen ATL, BYD introducing those sodium-ion cars and in ESS we’ve seen delays in projects using sodium-ion batteries. So what I would say is that previously our forecast was 9 percent for the passenger EV market by 2033, it’s now only 3 percent, and globally if we look across industries for 2033 it’s now only 2 percent sodium-ion. I think we’re going to have to see more volatility in lithium prices for that to become more attractive and from our forecasting perspective we’re not really seeing that in the market over the next couple of years. There would have to be some more Black Swan events for that happen so for now I don’t think there’s going to be much appetite in the EV or ESS market for sodium.
Kitco Mining: Lastly, over-capacity in China?
O’Hara: Some key statistics just to roll out, so last year we saw 99 gigawatt hours of excess capacity from the Chinese market and when I say excess I mean it was actually not installed so those were just batteries floating in the market and that’s carried through to this year so if I relate some data from July of this year we saw 21 gigawatts of excess LFP in the market and that’s the biggest we’ve ever seen, and I think as a result of that it’s going to pose some real questions here for European battery manufacturers. If we’re going to see a relatable fall in battery prices overall that’s going to make new projects coming online in Europe really difficult to finance and to get profit from, so it has real global implications. The only upsides that I would highlight is that the ESS demand that’s going on outside of China is really rapid. I was just speaking with someone today who’s looking for new LFP batteries. And I think what will happen there is the Chinese will look to export those batteries to other industries globally so we may not see the price of batteries tank to a point that’s unsustainable, but it is posing geopolitical as well as local questions in Europe that I think will need to be answered.
