This is a must read
Tuesday 5 February 2019Written Testimony of Simon Moores, Managing Director, Benchmark MineralIntelligenceFor: US Senate Committee on Energy and Natural Resources CommitteeHearing: Tuesday, February 5 2019, at 10:00a.m. Room 366, Dirksen Senate OfficeBuilding in Washington, DC.Subject: Outlook for energy and minerals markets in the 116th Congress.We are in the midst of a global battery arms race in which the US is presently a bystander.Since my last testimony only 14 months ago, we have reached a new gear in this energystorage revolution which is now having a profound impact on supply chains and the rawmaterials that fuel it.The advent of electric vehicles (EVs) and the emergence of battery energy storage hassparked a wave of lithium ion battery megafactories being built.Benchmark Mineral Intelligence is now tracking 70 lithium ion battery megafactories underconstruction across four continents, 46 of which are based in China with only five currentlyplanned for the US. When I gave my last testimony in October 2017, the global total was at17.Only one of these battery megafactories is American owned (Gigafactory 1, Tesla). This,however, was the world’s biggest battery plant and fourth biggest battery producer in 2018.Since October 2017, planned lithium ion battery capacity in the pipeline for the period 2019-2028 has risen from 289GWh to 1,549GWh (1.54TWh) in Benchmark Mineral Intelligence’sFebruary 2019 Assessment. This expanded capacity is the equivalent of 23-24 millionsedan-sized electric vehicles.This increasing scale will be a contributing factor to pushing lithium ion battery productioncosts below $100/kWh in 2019, Benchmark Mineral Intelligence data shows. This figure islong seen as a tipping point for the adoption of mass market EVs.Almost exclusively, these megafactories are being built to make lithium ion battery cellsusing two chemistries: nickel-cobalt-manganese (NCM) and nickel-cobalt-aluminium (NCA).This means the supply of lithium, cobalt, nickel and manganese to produce the cathode forthese cells, alongside graphite to produce battery anodes, needs to rapidly evolve for the21st century. However, the scaling up of these chemically engineered materials, which arenot commodities, is a major challenge for the industry.Those who control these critical raw materials and those who possess the manufacturingand processing know how, will hold the balance of industrial power in the 21st century autoand energy storage industries.At the beginning of 2019, the US has a minor to non-existent role in most of the key lithiumionbattery raw materials and only has a presence in lithium ion battery manufacturing viaTesla. Tesla and its Gigafactory 1 is emerging to be the most strategic US asset in the EVsupply chain.Chart 1: Build out of lithium ion battery capacity from 2018 to 2028Source: Benchmark Mineral IntelligenceChart 2 Lithium ion Battery Megafactory Raw Material Demand (tonnes)at 100%Utilisation RateSource: Benchmark Mineral IntelligenceThe growth trajectory expected for lithium ion battery raw material demand isunprecedented.Lithium ion batteries are becoming a major global industry and the impact on the four keyraw materials of lithium, cobalt, nickel and graphite will be profound.Chart 2 shows the theoretical demand from megafactories in the pipeline at 2023 and 2028.It assumes a 100% utilisation rate where each and every plant is constructed and operatedat full planned capacity.Under this scenario, lithium demand will increase by over eight times, graphite anode byover seven times, nickel by a massive 19 times, and cobalt demand will rise four-fold, whichtakes into account the industry trend of reducing cobalt usage in a battery.The real-world expectation is that 70% of this capacity will be realised by 2028 yet even atfull capacity this will not yield enough lithium ion batteries for EVs, energy storage andmobile technology.As a result, this global battery megafactory trend will continue.This would still cause major disruption in the mineral industries supply of lithium ion batteriesand the US is heavily import reliant on all four.Lithium:US Lithium Import Dependency in 2018: 92%.US mineral supply chain influence is greatest in lithium compared with its battery rawmaterial counterparts, but China remains the most influential player in this supply chain.In the US, there is currently one small lithium operation in Silver Peak, Nevada, but its outputis not destined for the EV battery market.The key US strengths are through lithium producers, Albemarle Corp and Livent Corp.Albemarle has begun to increase its supply base from an over-reliance on lithium fromChile’s Atacama. The EV demand outlook together with a number of political issues in thecountry has resulted in the company investing $1.15bn on a 50:50 joint venture with MineralResources Ltd to build a new lithium feedstock (spodumene) mine and downstreamchemical processing facility in Australia.It is a strategic move by one of the first companies to build spodumene processing capacitythat is geared for the lithium ion battery industry outside of China.This building of the lithium to EV value chain should be happening in the US.FMC Corp has recently spun out its lithium business into a new company, Livent, to renewits focus on the EV battery market. One would expect this to result in the companyincreasing its resource base from the Salar de Hombre Muerto in Argentina and to expandits downstream processing capacity.Despite this activity from US majors, there is yet to be any major domestic plans to buildeither new mines or major new chemical processing capacity for the EV battery market.It is also important to note that US lithium producers have been secondary movers whencompared to China’s lithium majors: Ganfeng Lithium and Tianqi Lithium.For the past 5 years, both companies have locked up the world’s best lithium assets, strucklong term supply agreements for EV batteries, and funded a significant portion of lithium’sexploration and development cycle, especially in Australia.A major driver for this is China’s lack of high quality domestic lithium resources. UScompanies have had the opportunity to lock up international lithium resources for the lastdecade but hesitated while Chinese producers invested.Domestically, the US still has an opportunity to develop its own supply of lithium from a widevariety of sources including South Arkansas’ Smackover (oil field brine), North Carolina’sPiedmont (spodumene), Nevada’s Silver Peak (continental brine), and California’s SaltonSea (geothermal brine).Funding for these new sources has been limited to date as institutional investors seek safehavens for their lithium dollars - Chinese, Australian or South American based companiesand assets - rather than the longer-term opportunity which a US domestic supply of lithiumbrings.Outside of these typical finance providers, industry stakeholders are another potentialfunding source: lithium producers, battery makers, and car manufacturers are the most likelycandidates. But to date, these major corporations have been risk averse and moreconcerned about share price and shareholder value than longer-term investments set tobenefit the health of the US supply chain.The rate of funding to build new lithium mines and downstream processing needs to double.Cobalt:US Cobalt Import Dependency in 2018: 100%.Cobalt is a critical safety component of the lithium ion battery, and while auto makers areseeking to reduce their consumption of this mineral, it is our opinion that cobalt will not beengineered out of a lithium ion battery in the foreseeable future.The US has little control over the cobalt supply chain, either with mining, in which theDemocratic Republic of Congo (DRC) is increasing its dominance, or refining, where Chinaholds the balance of power.The most strategic US asset in the cobalt industry is Freeport Cobalt (owned by Arizona’sFreeport McMoRan Inc) which owns the only major cobalt refiner outside of China, but stillacquires 100% of its raw material from the DRC – a Chinese run mine that it used to own.Another factor we do not see changing is the reliance on the DRC as the world’s primarysource of cobalt - in fact we are seeing DRC supply-side dominance increasing from 64% ofglobal supply in 2017 to 69% in 2018.While controversy surrounds cobalt from the DRC, and its link to child labour has been wellpublicised, what is key to understand is that less than 5% of total supply is affected by this. Itis, however, a major social responsibility issue for electric vehicle and battery makers tomanage.The world’s auto makers are now well versed in the risks the DRC brings, yet at presentthere is no other option for a large-scale supply of cobalt to come from other countries - newresources will need to be developed.The US has an opportunity to develop its own domestic supply of cobalt.Regions such as the Idaho-cobalt belt, which is globally known as being a cobalt richjurisdiction, presents one of the few opportunities for US cobalt supply security.Cobalt remains the highest risk lithium ion battery raw material, both from a supply structureperspective and a geopolitical one.Nickel:US Nickel Import Dependency in 2018: 59%As lithium ion battery manufacturers reduce the amount of cobalt used in battery cells, nickelconsumption rises and it does so in a major way.The move to what the industry calls high-nickel cathodes or NCM811 (8 parts nickel, 1 partcobalt, 1 part manganese) is set to put significant pressure on the nickel to EV battery supplychain.Over 90% of new lithium ion battery capacity in the pipeline is planning to use NCM cathodechemistries, and nearly all new capacity targeting the EV market will use NCM811 and theimproved energy density benefits it brings.This means the 2.2 million tonnes-a-year nickel industry has to re-gear to supply nickelsulphate or mixed nickel-cobalt hydroxide for these battery plants.Nickel’s use in lithium ion batteries accounted for 85,000 tonnes in 2018 yet this was only4% of total nickel demand. However, nickel demand from EV batteries is set to grow bybetween 30-40% a year, making it the fastest growing battery raw material.On the surface, global nickel supply seems fairly evenly spread. Indonesia and thePhilippines lead the way with a number of significant producers elsewhere, such as NewCaledonia, Russia, Canada and Australia.However, China is investing heavily in both Indonesia and the Philippines to guarantee itssupply of nickel and related products used in the battery industry such as mixed nickel-cobalthydroxide and nickel sulphide.In 2019, consumers are turning to new mines under construction in Indonesia that use ahigh-pressure-acid-leach (HPAL) method to extract nickel. A number of HPAL projects in thepast have failed and therefore new nickel supply for the battery industry is far fromguaranteed.Graphite:US Graphite Import Dependency in 2018: 100%.While lithium, cobalt and, more recently, nickel have received much of the attention and thebulk of investment in new capacity globally, China has quietly led the way in the expandinggraphite industry for the EV market.This is perhaps unsurprising given that China dominates both the mining and refining side ofthe flake graphite to anode supply chain.In 2018, China was responsible for 56% of the world’s flake graphite supply – the minedfeedstock that is used to manufacturer lithium ion battery anodes.China also accounted for 100% of the world’s uncoated spherical graphite supply, which isthe processed anode material that is used in lithium ion batteries.The country’s leading producers of anode material – BTR New Energy, ShanshanTechnology, and LuiMao Graphite – are leading China’s spherical graphite expansions to acumulative 420,000 to 450,000 tonnes per year by 2020. This four-fold increase is a directresponse to China’s soaring domestic EV demand.The US has zero graphite mining or processing capacity geared towards the lithium ionbattery industry. While graphite can also be synthetically produced and used in batteries,domestic synthetic graphite expansions have not yet occurred on a significant basis.The US does not have any active US flake graphite mines nor does it have any capacity toproduce anode material from this feedstock. The most strategic US asset in the anodesupply chain is German-owned synthetic-producer, SGL Carbon, which has a number ofproduction sites and knowledge bases in Ohio, Pennsylvania, North Carolina andWashington state.Considering China’s position across the entire graphite to EV value chain, secure supply ofanode material is as big a risk as cobalt for US to consider.Source: Benchmark Mineral IntelligenceAbout Benchmark Mineral IntelligenceBenchmark Mineral Intelligence is the world's leading voice and most trusted provider of independentprice assessments for the lithium ion battery and electric vehicle (EV) supply chain.Benchmark is globally known for setting the lithium industry's reference price which is relied upon tonegotiate contracts between actors in the industry, including lithium extraction operators, to cathodemanufacturers, battery cell producers and automotive OEMs.Benchmark’s Lithium Price Assessments and analysis is also relied upon by the financial communityto aid critical investments into the lithium ion supply chain.The company also produces regular price assessments on cobalt chemicals and graphite anode andalso assesses lithium ion battery megafactory capacity build out.The EV and battery cell supply chain is Benchmark’s sole focus and speciality.In addition to and wholly separate from its Price Assessment Division, Benchmark also provideslithium forecasting and consultancy services that are relied upon by a wide range of customers fromgovernments, electronics manufacturers, EV makers, battery cell producers, and lithium miners.To complement its publishing activities, Benchmark has created the industry’s leading platform todiscuss the subject - The Benchmark World Tour. Starting in 2015, the annual series offers freeinvestment and industry seminars, has grown to 15 cities in North America, Europe, Asia andAustralia.Benchmark also hosts an industry gathering for the lithium ion supply chain in November of eachyear. Benchmark Minerals Week consists of two main conference, Graphite & Anodes and Cathodes,and is the world’s meeting place to negotiate deals and network.Benchmark’s price data, insight, and understanding of the subject is unrivalled and culminated inbeing summoned to the US Senate to testify in 2017 and 2019. In addition, Benchmark has beeninvited to give guest lectures at the University of Oxford and advise the UK Government.About Simon MooresSimon Moores is the world’s leading authority on lithium ion battery and energy storage supply chainswith a specialist focus on lithium, graphite and cobalt.Simon is managing director of Benchmark Mineral Intelligence, an independent price assessment andconsultancy company for lithium ion battery supply chain and he has gained unique insight into thisopaque world since 2006 when he began his career in lithium.As a result, Simon and Benchmark are cited around the world in international press, official filings andin government research.In October 2017, Simon was summoned to testify to the US Senate Committee for Energy & NaturalResources in Washington DC as an expert witness on energy storage supply chains. He has alsobeen invited to give regular guest lectures to the University of Oxford and has spoken at StanfordUniversity.Benchmark Mineral Intelligence has also advised some of the biggest actors in the lithium ion batteryspace from battery manufacturers, to electric vehicle producers and mining companies, regularlytravelling to meet these players across the world from Chile to China.Benchmark has developed and launched the lithium industry’s reference price which is assessedeach month by Benchmark Mineral Intelligence, published Bloomberg, Thomson Reuters, and usedby the industry to negotiate contracts.Simon and Benchmark are widely quoted in the global media including China Daily, Financial Times,New York Times, Wall Street Journal, Washington Post, The Times, Bloomberg, Thomson Reuters,The Economist, Chicago Tribune and Fortune.Benchmark has also advised leading banks such as Goldman Sachs, UBS, CLSA, Deutsche Bankand Bank of America Merrill Lynch and the world’s most influential funds.Benchmark also host three annual events: Cathodes Conference, Graphite + Anodes 2018 and theBenchmark World Tour. These events are the industry’s leading platforms for lithium ion supply chaininformation and deal-making in the supply chain.Simon has a BSc in Geology with Geography from the University of Birmingham, UK.
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