Metal price rally to continue into 2022, pressures EV penetration

With batteries used to power electric vehicles becoming an absolute necessity, raw metal materials in 2021 have seen a sharp rise in demand, and the trend is expected to continue in 2022. However, this will result in higher costs for automotive brands, prolonging the adoption of EVs, commonly touted as a crucial tool in fighting climate change.

Just as the world is quickly adapting to the green energy transition, the COVID-19 pandemic, entering its third year, has further worsened the supply chain disruption. On top of this record surge and unprecedented backup, demand for metals, such as lithium, cobalt, nickel, and others, have prompted an uptick in prices as well.

The Omicron variant is posed to complicate the situation further. According to BNEF Head of Metals and Mining Kwasi Ampofo, the new variant has put a stop button to the global economic recovery effort. He expects the current volatile metal prices to continue into 2022 and warns the industry to expect high prices for lithium, graphite, and cobalt throughout the year, and prices to wind down in 2023. Ampofo expects nickel prices to fall back to its usual threshold in the latter half of 2022.

Lithium Prices Smash Record-Highs

Benchmark BMI index for lithium prices has doubled this year alone, reaching historic record-highs. Chinese manufacturer Chengxi Lithium was quoted regarding lithium prices that could maintain its high-point for a time, mostly due to the high demand on the consumer side. On the other hand, the production capacity for lithium is also capped by brine capacity and Spodumene supply, factors that are difficult to resolve in a short period.

After enduring years of lacking investment and low prices, the green energy sector finally sees a respite as lithium demand surges. The demand for lithium is viewed as a positive point as the rare metal is also commonly used to produce EV batteries. BNEF ETS reported that by 2040, passenger EV sales would explode to 66 million units, a clear increase from the 3 million units sold in 2020.

Cobalt prices have doubled this year, with S&P Global Market Intelligence analyst Alice Yu citing supply chain issues in South Africa as a major factor towards the instability of cobalt prices. Much of the world's cobalt reserves are located in the Democratic Republic of the Congo, and exported through South Africa. With the Omicron variant first officially reported from the region, prompting travel restrictions from many Western countries, it has further impacted the rare metal supply.

Shanghai Qin Cobalt Industrial General Manager Wang Wen-tao offered a different perspective, highlighting that suppliers are ramping up production for cobalt that is expected to go up online next year, yet governments are looking to raise interest rates at the same time and could result in a turn of conservative investment interests as a result.

EV Costs to Rise

The rechargeable battery has always been the most expensive component in an EV, and the price instability for rare metals has pushed the overall costs to manufacture EVs to another high. Chinese battery manufacturers in the world's biggest EV market are feeling the pressure as material costs rise.

SVOLT, a Chinese manufacturer that had signed with Stellantis regarding battery supply, had already broached the topic of inflated copper prices. Volkswagen's partner supplier Gotion High Tech also reportedly notified clients of hiking battery prices in mid-October.

BNEF originally forecasted that battery module prices would fall to USD$100 per kilowatt-hour by 2024, pushing EV prices on par with ICE or diesel-powered vehicles. However, BNEF reported that this benchmark could be pushed back by two years to 2026 due to the hike on metal prices.