Nickel To Dominate Battery Metals Market By 2027

Key View:

Nickel is set to experience the largest demand impact from use in EV batteries over our forecast period over 2018-2027, buoyed by the rising use of nickel-heavy NMC cathodes among EV manufacturers.
Despite being touted as one of the key metals of the battery revolution, global cobalt demand from EV batteries will be lower than manganese, as manufacturers shun the former due to price and sustainability considerations.
Cumulative demand for iron will be higher than anticipated over the next ten years, being second only to nickel due to the high proportion of LFP cathode sales in the Chinese electric vehicle market.
Aluminium and phosphorus will be the least impacted metals over 2018-2027 as they are only used in one type of cathode each, NCA and LFP respectively.
Leveraging our existing EV sales forecasts across 53 markets, we have developed a new proprietary model forecasting the impact of EV batteries on metals demand over the next ten years. Our preliminary findings reveal that, as expected, nickel will witness the highest demand-side impact over the coming years. However, we have also been able to ascertain more surprising results, such as the outperformance of manganese relative to cobalt and the strong demand outlook ahead for iron. Below, we delve deeper into the reasons behind these trends, revealing our findings on a metal-by-metal basis.

Nickel To Outshine Competition

Based on preliminary findings from our calculations, global nickel demand from EV batteries will amount to 19.4kt in 2018, rising to 131.7kt by 2027, as the use of nickel-heavy NMC cathodes among manufacturers become increasingly prevalent over the same period. This will position nickel as the primary demand beneficiary of the EV revolution on the metals side, significantly ahead of lithium, cobalt or iron.

Nickel To Be Standout Performer

The NMC cathode will become the chemistry of choice for EV manufacturers over the coming years, due to their high energy density, thermal stability and low cost (See 'Battery Cathodes Chemistries To Set Demand Trends For Metals', October 16). Currently, most NMC cathodes are referred to as NMC 622, so-called due to the ratio of metals they contain (6 parts nickel, 2 parts manganese and 2 parts cobalt). However, due to concerns relating to the price and sustainable sourcing of cobalt, battery manufacturers are in the process of increasing the share of nickel in these cathodes in order to achieve a ratio of 811 (8 parts nickel, 1 part manganese and 1 part cobalt).

As of 2018, battery suppliers LG Chemistry and CATL are already working to produce NMC 811 cathodes over the coming years, while manufacturers BYD and Mercedes have announced NMC 811-based models for 2019. We forecast the share of NMC 811 cathodes will account for 80% of all new NMC battery sales by 2027, up from just 2% in 2019. This transition will lead to an increase in average nickel content from 34.6kg to 44.5kg for each NMC cathode produced over the same period.

NMC 811 Growth Will Bolster Nickel

Global nickel demand will be further supported by EV production in China, where we expect most manufacturers to switch from the currently predominant LFP cathode batteries to the aforementioned NMC cathodes. In June of this year the Chinese government announced it now requires electric vehicles to have a range of at least 150km - up from 100km previously - in order to receive state subsidies. We believe this regulatory change will speed up the increasing adoption of nickel-heavy NMC cathodes in the country over the coming years, as this type of cathode has, on average, a longer range than LFP cathodes. We forecast NMC cathode sales in China to make up 57.0% of total domestic cathode sales by 2027, up from only 11.4% in 2018, while LFP cathode sales will decline from 84.1% of the market in 2018 to 26.8% by 2027. The shift to NMC cathodes in China will be particularly relevant for nickel demand due to the large size of the domestic EV market. With over 2.0mn new EV sales expected in 2027, China will become the largest EV market in the world, significantly ahead of second-placed US, which will witness 403k new EV sales on the same year.

Lithium Demand To Outperform Cobalt

Lithium & Cobalt: Diverging Fortunes

With regards to cobalt and lithium, the two rare earth metals generally considered to be the key metal components of EV batteries, we expect to see diverging fortunes. The transition towards nickel-heavy NMC 811 cathodes will lead to lower demand for cobalt, which will increasingly be shunned by manufacturers due to price and sustainability considerations. The unstable and restricted supply of cobalt from the DRC - the largest producer by a significant margin -  makes the metal prone to price spikes, as witnessed over 2017. Secondly, the questionable ethical nature of cobalt supplied by the DRC, due to the prevalence of child labour and conflict mines in the country, will drive battery makers away from the metal in an effort to mitigate reputational risk (see 'Miners Under Pressure To Improve Environmental Reputation, Transparency', May 17 2018). As a result, we forecast cumulative demand for cobalt from EV batteries over 2018-2027 to amount to 122kt, considerably less than nickel, lithium and even manganese (see chart below).

Cobalt To Lag Behind Other Key Metals Due To ESG Concerns

Cumulative demand for lithium will be the third highest after nickel and iron over the period from 2018-2027, due to its presence in all cathode combinations. Lithium is found in both the anode and cathode of all lithium-ion battery chemistries, being the key element that allows batteries to charge and discharge. Furthermore, unlike cobalt, global lithium supply is more diversified across a number of better regulated jurisdictions such as Chile, Australia, Argentina and China - making it less prone to price spikes or ESG concerns. As a result, lithium will continue to be an integral component of all EV batteries moving forward - supporting global demand levels for the metal over the next 10 years.

LFP Will Retain A Significant Presence In China

China To Bolster Iron As Aluminium And Phosphate Lose Out

While generally less talked about as part of the EV battery story, we believe iron will witness considerable demand-side impact due to the widespread use of LFP cathodes in China over the coming years. Known for their low cost and reliability, LFP cathodes used by key Chinese manufacturers BYD, Denza and Byton, among others, currently account for over 84.1% of new EV battery sales in China according to our estimates. While we forecast this share to gradually decline over the coming years as NMC cathodes sales become more prevalent, LFP cathode sales will continue to account for 26.8% of new sales in China by 2027 - a considerable portion of what is the largest EV market in the world. As a result, we forecast cumulative demand for iron from EV batteries over 2018-2027 to amount to 259kt, second only to nickel. This additional demand will likely add support to an otherwise bearish iron ore price outlook over the coming years,