China to dominate battery metal demand

Fitch Solutions’ demand trends for EV battery metals over the coming years have revealed that China will remain the key driver of direct metals demand.

The analysis estimates that the indirect growth for cobalt, nickel and lithium will be the strongest across the EU under the bullish scenario, which is underpinned by favourable policy assumptions.

However, indirect growth for these three metals will lag behind across all scenarios in the United States, due to more restrictive EV policy assumptions based on poor support at the federal level.

Fitch Solutions has divided the geographic demands for battery metals into direct demand, which refers to demand from any country/region where battery manufacturing takes place domestically and indirect demand, which refers to demand from country/regions where EV sales make stoke demand for batteries containing key metals that are produced.

The direct demand for nickel, cobalt and lithium will remain the strongest in China across both the core and bearish case scenarios over the coming years.

The Chinese Government has set ambitious EV targets and we retain a positive outlook for China’s EV market as intensifying competition from major vehicle brands will drive down costs and improve choice.

Despite recent subsidy cuts announced in July 2019, price reductions among automakers and the rolling out of EV sales targets for vehicle manufacturers will continue to position the Chinese EV market as the most dynamic in the world.

While the demand growth for nickel, cobalt and lithium will spike in 2023-2025, Chinese carmakers’ strategies relating to EV production targets generally end in 2025, and EV sales growth and subsequent metals demand growth will begin to slow from 2025 onwards.

Fitch Solutions also revealed that due to the still-prevalent use of iron-heavy LFP batteries in China, a bullish case for EV sales and metals demand would lead to cumulative demand of 415,000 tonnes of iron from the country over 2019-2028 compared to just 145,000 tonnes in its bear case scenario.

Under Fitch Solutions’ bullish scenario, the EU will witness the fastest average growth in indirect demand for cobalt (25.8 per cent y-o-y), nickel (31 per cent y-o-y) and lithium (27.9 per cent y-o-y) up to 2028, ahead of China and the US.

According to Fitch Solutions, the reason for this is that EU EV sales team from a lower base in comparison to the US and China and as such the potential for growth is higher.

For example, according to Fitch Solutions’ Autos team estimates, EV sales will amount to over 370,000 units in 2019, compared to 458,000 in the US and 1.252 million in China.

Within its bullish, base and bearish case scenarios, Fitch Solutions forecast that the US indirect demand for cobalt, nickel and lithium to average slower annual growth than in China and the EU over 2019-2028, as a lack of supportive federal policy will pose obstacles to mass EV adoption in the country.

In February 2019, the Trump administration announced new standards that freeze emissions and fuel-efficiency requirements at the 2021 level, loosening previous higher targets and in contrasts to much stricter regulations implemented by California and adopted by 12 other states.

Its bullish case for the country assumes that future US government policy will take a favourable turn towards the EV market, in order to keep pace with rapidly developing EV segments in China and Europe.

The ongoing use of NCA batteries (containing nickel, cobalt and aluminium) by Tesla in the US market means that indirect aluminium demand will remain sustained in this market.

Cumulative indirect aluminium demand from the US EV market in our bullish scenario will amount to 9800 tonnes over 2019-2028, compared with to 3300 tonnes in China and 1300 tonnes in the EU.

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