Trafigura taking lithium supply matters into its own hands

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by Glenn Dyer

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Unlike Tesla’s Elon Musk who continues to whine about the cost of key renewable miners such as lithium and the shortage – now and projected out to 2030 – there’s one major global player which is making sure it can get its hands on its share of these key commodities to set itself up for the evolving boom.

Musk time and again muses that he and Tesla (but not Twitter, investors hope) could buy a miner to make sure there was enough key green metals available by 2030 – metals such as lithium, copper, nickel, cobalt, aluminium and the PGE elements.

But he continues to talk and do nothing. Other major players not directly involved in the EV industry are already hunting and searching for supply, technologies or new ideas.

For example, Twiggy Forrest’s Fortescue Metals and its subsidiaries, Fortescue Future Industries and Wyloo Metals are on the hunt for green technologies such as hydrogen and producing the key production item, electrolysers.

Wyloo is looking for minerals and taking equity stakes in prospective partners in Australia, Canada and several other countries.

Glencore, another global commodities giant, is involved in battery recycling in the UK – it has extensive interest in cobalt and other green metals and is trying to play down its involvement with thermal coal.

Musk is talking and while doing deals with miners, they are supply contracts for lithium (Albemarle in WA) or nickel (eg with BHP’s Nickel West), not equity investments to gain control over productive mines or mineral processing units.

Global commodity trading giant, Trafigura revealed this week it is making sure the likes of Musk will pay a proper price for Tesla’s raw materials.

This will be good news for the Australian lithium mining and processing sector as Trafigura is one of the top three commodity traders around the world and already operating here in metals (Nystar at Port Pirie), green hydrogen in a $750 million plant, also at Port Pirie and carbon fuels through Puma Energy.

Trafigura is set to take a stake in a UK start-up company which plans to supply car and battery makers in Europe with lithium from a British-based refinery.

As part of the investment, Trafigura, one of the world’s biggest metal traders, would source Green Lithium with feedstock for its planned 50,000 tonne a year plant in the north of England.

The new refinery will supply European electric vehicle and battery manufacturers with battery-grade lithium chemicals. Under the newly-established relationship, Trafigura plans to supply lithium feedstock required for the planned UK-based refinery and invest equity in Green Lithium’s development phase funding round.

Industry estimates suggest that the UK and European electric vehicle industries will require 1.4 million tonnes of refined battery-grade lithium hydroxide and lithium carbonate a year by 2030, meaning growth of more than 400% in supply is needed over the next ten years.

The investment is part of Trafigura’s growing efforts to diversify and develop its business across other battery metal commodities while boosting its position in the battery and electric vehicle value chain.

Currently, Europe has no commercial lithium refining capability. This makes the continent depend on China (as well as Australia) for critical battery metals to meet the demand for the EV and sustainable energy storage sectors.

This would be Trafigura’s first big deal in lithium which estimates that more than 90% of the world’s battery grade lithium is produced from refineries in China, which also processes the vast majority of cobalt and nickel, other key battery materials.

Socrates Economou, head of nickel and cobalt at Trafigura, said there were a lot of large ‘gigafactory’ battery projects under development in Europe and North America. “The question is where are they going to get the raw materials that go into the batteries,” he told the Financial Times.

Most of the lithium used in electric car batteries is currently extracted from brines in Chile and Argentina and from rock dug up in Australia which is then processed in China, often using fossil fuels.

There are currently no commercial refineries in Europe, making the region’s car and battery makers almost totally reliant on China for supply.

“Ninety per cent of Australia’s lithium production… is tied up with Chinese refiners because there is no other capacity in the world,” Economou told the Financial Times.

Benchmark Mineral Intelligence, forecasts 117,000 tonnes of lithium demand for batteries in Europe this year, rising to 250,000 tonnes in 2025 and 600,000 tonnes by 2030.

From 2024, battery and car manufacturers in Europe will also face high tariffs if they do not source raw materials locally.

But before then, Green Lithium still have to get approvals required for its project (hopefully by the end of this year). The site of the plant still has to be named and the money raised. Trafigura’s name will help in that round and will give the project credibility

Green Lithium has spent the last four years working on developing the project from ideas into reality. It has funds from investors and the UK government, now for the reality.

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According to a report from the Cobalt Institute this week, demand for the exotic metal from electric vehicles overtook smartphones and personal computers for the first time in 2021.

Cobalt is used in lithium-ion batteries in EVs and that’s why we are seeing a dramatic rise in demand.

David Brocas, Head Cobalt Trader at Glencore and Chairman of the Cobalt Institute’s Executive Committee, said in a statement with the report: “Securing access to raw materials is crucial if the world is to achieve the sustainable and just transition to a greener future.

“Cobalt’s role in batteries and recycling makes it one of the critical materials of a climate-neutral future,” he said.

In 2021, the cobalt market showed unprecedented demand growth of 22%. This upward trend is expected to continue, rising by about 13% per year for the next five years.

The EV industry consumed 59,000 tonnes of cobalt in 2021, or 34% of annual demand last year, as sales of electric and hybrid vehicles doubled.

That outstripped the 26,000 tonnes of metal used in mobile phone manufacturing and 16,000 tonnes in laptops and tablets. Total demand for cobalt was 175,000 tonnes against mined supply of 160,000 tonnes.

The shortfall in supply underlines the main challenge for the supply side of the equation – securing enough raw material.

It’s a message Tesla’s Elon Musk has been harping on about without doing anything to bridge the gap except twitter.

“It’s not out of the question,” Musk said at a Future of the Car chatfest at the start of this month.

“We will address whatever limitations are on accelerating the world’s transition to sustainable energy. It’s not that we wish to buy mining companies, but if that’s the only way to accelerate the transition, then we will do that.”

As more electric vehicles are rolled out, concerns are mounting about potential supply crunches for crucial battery metals from cobalt to lithium and nickel. Demand from the car industry is expected to account for half of the cobalt demand as early as 2026.

Cobalt is in a special position compared with other green metals because it is a by-product of mining copper and nickel, and supply is very concentrated by geography and company.

Almost three-quarters of the world’s mined cobalt supply comes from the Democratic Republic of Congo, where production is dominated by Chinese companies and London-listed Glencore.

Indonesia is the largest growth market for refined cobalt production after China, and is expected to provide a quarter of total refined cobalt growth in the medium term.

The Cobalt Institute report shows that the central African country produced 118,000 tonnes of cobalt in 2021 — significantly more than the next largest supplier, Australia, at just 5,600 tonnes – though more metal is coming from Australia in coming years from mines such as the Julimar prospects owned by Chalice Mining.

While a growing number of electric cars in China — the world’s largest EV market — are powered by low-cost lithium-iron phosphate batteries, which low range and performance, the top models in the US and Europe are still dominated by nickel-cobalt battery chemistries.

These batteries accounted for three-quarters of global EV demand in 2021, according to the report.

“Cobalt-containing batteries are a technology of choice for many car manufacturers in Europe, North America and China,” according to Adam McCarthy, president of the Cobalt Institute.

Looking ahead, the institute sees cobalt demand hitting 320,000 tonnes in the next five years, up from 2021’s 175,000 tonnes in 2021 as pure EVs (plug ins) increase their domination of the market over hybrids.

By 2050 Glencore reckons 507,000 tonnes of cobalt will be required each year – mostly by EV/battery groups.

Glencore says that at the moment forecast supply growth will struggle to keep pace with demand.

While supply is expected to pick up this year and in 2023, leading to a more balanced market, the Cobalt Institute says it will start to slow from 2024, leading to large deficits.

“From 2024-26 supply growth will average 8 per cent per year, compared to more than 12 per cent for demand,” the report forecast.

The price of cobalt doubled last year, rising from $US16 a pound to $US32/lb on the back of strong demand from the automotive sector and supply disruptions. It is currently trading at $US37/lb.

Besides Chalice, other local listed companies in cobalt include Cobalt Blue at Broken Hill, Aeon Metals in North Queensland, Australian Mines, also in Queensland and Jervois Global in the US.

We know that Chalice’s Gonneville prospect north east of Perth contains at least 54,000 tonnes of cobalt, a figure that seems certain to rise when a new reserves report is released.

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And on Friday a small but significant milestone announcement from IGO about its lithium ambitions.

IGO revealed the “first and consistent production of battery grade lithium hydroxide” from the Kwinana Lithium Hydroxide Refinery south of Perth.

IGO said it was an important milestone for the Lithium Joint Venture between IGO (49%) and Tianqi Lithium Corporation (51%) of China.

“Based on onsite laboratory tests, the joint venture has successfully and consistently produced battery grade lithium hydroxide over several days. Once product samples have been independently verified, the product qualification process with offtake customers will commence.

IGO CEO, Peter Bradford, commented said in the statement that

“Vertical integration into downstream processing is a key plank in IGO’s strategy and we are proud to be involved in the first production of lithium hydroxide in commercial quantities in Australia.”

“The joint venture’s interest in both the upstream mining asset at Greenbushes and the downstream refinery at Kwinana is emerging as a globally significant, integrated lithium business,” he said in the statement.


Ends

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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