The price of cobalt stood at $79,295 per tonne on 7 March, its highest point since June 2018. On 8 March, nickel prices reached an unprecedented high of over $100,000 per tonne, resulting in the London Metal Exchange suspending trading in the commodity for the day.
Commodities and other markets have seen a surge in prices, as Russia’s invasion of Ukraine has resulted in sanctions targeting the Russian economy and disrupting supply chains. Other than nickel and cobalt, the prices of palladium, gold, oil and wheat have also hit record highs.
Nickel and cobalt are particularly important for the construction of batteries for electric vehicles (EVs). The most used battery type for EVs is the lithium-ion (Li-ion) battery, the key minerals for which are lithium, cobalt, nickel, graphite and manganese.
In the last few years, EV sales have boomed. Sales in Europe hit a record increase in 2020, overtaking China as the region with the highest number of new EV registrations. In 2019 and 2020, sales went up 142% compared to a year earlier.
While overall new car sales stagnated in Europe 2021, 2.3 million registrations were still added to the EV stock. With total global electric car sales of 6.6 million, EV sales made up almost 9% of the global car market. That number is only expected to rise as a result of many nations setting targets to phase out fossil fuelled cars in the next decades.
With the demand for EVs rising, so does the demand for batteries and critical minerals. According to the IEA, the demand for EV batteries in Europe was 52.4 GWh/year in 2020. In 2019, that was still 24.9 GWh/year, an increase of 110%.
The growing demand for the minerals needed in batteries poses a challenge for the mining sector. Minerals such as lithium, nickel and cobalt are produced in just a handful of countries – more than half of the supply of each mineral comes from the top 3 producing countries. This makes the supply chain vulnerable to disruptions and price volatility.
Russia is the world’s second-largest cobalt producer, responsible for more than 6% of global cobalt production, as well as the third-largest nickel producer, with over 11% of global production.
It would be possible to get the supply of nickel and cobalt from countries other than Russia. Data from the United States Geological Survey (USGS) for example, shows that other than Russia, the Democratic Republic of the Congo (DRC) and Australia were the top producers of cobalt in 2020, with 69% and 4% of global production respectively. Indonesia and the Philippines are the other big producers of nickel, with more than 30% and 13% of production, respectively.
However, there are limitations to supply in the short term. Before the Russian invasion of Ukraine and rising tensions between the two countries, prices of critical minerals for the energy transition were already rising due to an increase in demand. The challenge for the mining industry is keeping up with this demand.
In May 2021, the International Energy Agency (IEA) released a report expressing their concerns about the future security of minerals essential for the energy transition, such as minerals for EVs.
“The data shows a looming mismatch between the world’s strengthened climate ambitions and the availability of critical minerals that are essential to realising those ambitions,” said Fatih Birol, executive director of the IEA, in a press release.
There is no lack of reserves for most of these minerals. According to USGS data, Indonesia, Australia and Brazil have the biggest reserves in nickel, with an estimated global reserve of more than 95 million tonnes identified. For cobalt, over 7.6 million tons of reserves have been identified, with the DRC, Australia and Indonesia the top three locations.
The difficulty lies in creating new mines to utilise those reserves. According to the IEA, moving a mining project from discovery to the operational phase takes 16.5 years on average. The long development times “raise questions about the ability of supply to ramp up output if demand were to pick up rapidly”, according to the agency. Or – as the case could be now – if there was a sudden disruption in supplies.
The disruption in the supply chain are already resulting in price increases for electric cars. On March 1, an American electric vehicle maker, announced a hike in prices due to high raw material prices. Tesla might follow. On March 14, Tesla CEO Elon Musk tweeted about his EV company "seeing significant recent inflation pressure in raw materials and logistics".
According to an analysis by GlobalData, Energy Monitor’s parent company, two of the most important drivers for EV adoption have been subsidies and battery prices.
The battery contributes around 35–40% to the cost of an EV, according to the GlobalData report. If battery prices rise alongside commodity prices, it could impact the growth of EVs in the coming years, especially if the rise in prices is paired with uncertainty over subsidies, as is the case in Germany. As part of a stimulus package during the pandemic, the German government introduced a bonus of up to €9,000 for purely electrically powered vehicles until the end of 2022.
“Clarity on the subsidy level from 2023 onwards is currently unavailable,” writes analyst Mohit Prasad in the report. “With battery prices set to increase [...] Germany might witness muted growth in EVs in the coming years.”
In a worst case scenario, Germany may not be able to meet its target of 15 million EVs on the roads by 2030, concludes GlobalData.
Editor's note: The original version of this article appeared on our sister site Mining Technology on 9 March 2022.