Battery Materials Market Dynamics in 2024: An Analysis of Oversupply and Macroeconomic Challenges

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Xuan-Ce Wang

04/02/2024

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Abstract

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The battery materials market is a complex and dynamic sector that is closely linked to the development of the clean energy transition. The demand for battery materials is largely driven by the adoption of electric vehicles (EVs), which require high-performance batteries to power their motors. However, the supply of battery materials is also influenced by various factors, such as the availability of raw materials, the geopolitical situation, the environmental and social impacts, and the technological innovations. In this paper, we explore the current state of the battery materials market in 2024, focusing on the main challenges and opportunities that arise from oversupply and macroeconomic headwinds. We examine the trends and outlooks of the key battery materials, such as lithium, cobalt, manganese, nickel, and graphite, and how they affect the price and profitability of the sector. We also discuss the implications of the weak price environment and the persistent volatility for the capital investment and the innovation in the battery materials market.

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EV sales growth to decelerate in 2024

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The EV market has shown remarkable resilience and expansion in the past few years, but 2024 is likely to see a deceleration in sales growth, with a lower year-on-year growth rate predicted. Economic factors, especially high interest rates, are anticipated to influence consumer choices, resulting in a decline in EV sales growth. EV production plans are also expected to face challenges, especially in markets like the US, where vehicle financing is a key factor.

Our analysis suggests that EV sales will continue to grow steadily in 2024, but with a lower (23%) YoY growth rate than in 2023 (36%), as the economic situation, especially high interest rates, affect buyers’ preferences.

Fig.1. Slowing rates of growth across the EV value chain in China 2021 – 2023 (source: Fastmarkets)

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This will be more evident in markets such as the US, where vehicle financing is a major determinant of consumer purchases. The end of 2023 witnessed a reduction in EV production estimates from some of the leading western automakers. As EV sales fail to meet expectations in Europe and the US, we foresee further setbacks or slowdowns in EV factory ramp-up in 2024.

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Lithium Supply Dynamics:

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Lithium production has outpaced consumption since 2023, thanks to the restarts, expansions and greenfield projects that began in 2022, especially in China. This has shifted the market from a supply deficit to a surplus.

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Table 1. Lithium supply/demand (Tonnes LCE; source: Fastmarkets)

As we enter 2024, we observe a mixed picture of supply dynamics. On one hand, some new supply is coming online, while on the other hand, some high-cost production is being curtailed. Fastmarkets projects lithium supply to grow by 30% in 2024. However, we also note the potential impact of the current price environment on supply, as some producers may opt to lower production or postpone expansions. Moreover, while Chinese production seems more resilient to delays – as evidenced by the ramp-up of domestic lepidolite and African spodumene projects, we anticipate that most new capacity will face some start-up challenges, adding to supply-side risk. Downstream lithium demand is expected to remain relatively soft and with no imminent worries about supply shortages, we forecast a cautiously balanced market in 2024.

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We think we are nearing the bottom of the market, given that the industry is operating fairly deep into the cost curve. This is likely to support lithium prices as producers consider further production cuts to balance the market and avoid further losses. Considering the Chinese New Year holiday in February, we think it is improbable that consumers will return to the spot market to replenish their stocks during the beginning of the year, so prices are likely to stay around current spot levels in the first quarter. We think there could be some replenishment in the second quarter, which should result in a mild recovery in prices and may also trigger some rapid price fluctuations. After this period of replenishment, we expect prices to stabilize but generally trend down for the second half of the year.

Fig. 2 The current weakness in lithium prices and demand is expected to persist into the first quarter of 2024 (December 2022 - December 2023; source: Fastmarkets)

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Cobalt prices remain under pressure

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The global cobalt market faced downward pressure on prices in 2023, as cobalt demand growth slowed down due to weaker macroeconomic conditions and lower NCM battery demand. NCM batteries faced stiff competition from LFP batteries, which do not use cobalt, in the Chinese market.

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The outlook for 2024 remains uncertain, as cobalt demand may not keep up with the supply growth from the DRC, Indonesia and China. We expect the global cobalt market to be in surplus in 2024, which will keep prices low throughout the year. The average price for 2024 is projected to be slightly lower than in 2023.

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Low cobalt prices may create an opportunity for OEMs in some markets to switch to lower nickel NCM batteries, which have higher cobalt content and lower costs. However, the growth of ex-China refined cobalt production will be overshadowed by the expansion of the Chinese refined cobalt industry in 2024.

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Figure 3. Next-in-line cobalt projects, January 2024 (Hover over each project to show predicted start dates and capacity

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Manganese Surplus and Upside Potential:

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The outlook for manganese prices is bearish due to the excess supply of manganese and the weak demand for NCM cathode active material in 2024.

The HPMSM market has been in a state of oversupply since 2021. The market situation improved slightly in 2023 but we expect a bigger surplus in 2024 as more production capacity comes online in China. The abundant supply, high inventory levels and lower-than-expected demand growth will keep the prices low in 2024. Some producers in China are operating at or near their break-even point, which may force them to reduce their output.

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The market needs a positive signal from other key battery materials and downstream customers before we can see a rebound in HPMSM prices to the levels of 2022. However, there is a promising development in the use of high-purity manganese in LFP cells to enhance their energy density. This has generated a lot of interest and investment in lithium manganese iron phosphate (LMFP) projects in 2023. The announced gigafactory capacities are still small but we anticipate a rapid commercialization of LMFP cells in 2024.

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The adoption of LMFP and other lithium-ion battery chemistries that use HPMSM and other high-purity manganese salts could boost the manganese demand significantly in the latter half of the decade.

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Nickel market to remain in surplus

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The demand for nickel from the battery industry has grown significantly as more electric vehicles (EVs) are produced, but it still lags behind the stainless steel sector, which consumes most of the primary nickel. However, the nickel market has been in surplus since 2022 and will remain so in 2024, mainly due to the increase in Indonesian mine output that has boosted refined production in China and Indonesia.

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The nickel price will face various challenges in 2024, both from macroeconomic factors and market fundamentals. We expect a temporary price recovery in the first quarter of the year, but then a downward trend as the supply-demand imbalance becomes more evident. The premium for nickel sulfate, which is used in battery cathodes, dropped in early 2023 because of weaker-than-expected EV demand, but then rebounded and we forecast a slight increase in the premium in 2024 and a gradual rise in the following years.

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The nickel market will see a large expansion of production capacity, which will create a structural oversupply and put downward pressure on the average nickel price in 2024.

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Figure 4. Nickel is expected to remain in oversupply during 2024 (2021 - 2027 (forecast)

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Deteriorating graphite prices will hinder investment

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The graphite market will face more challenges in 2024 due to oversupply, Chinese competition, high stockpiles and weak demand from the key end-use sectors of lithium-ion batteries and steel. The slowdown of China’s economy and the global EV market will also weigh on graphite consumption.

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We forecast that graphite prices will not see any significant improvement in 2024 and will stay at similar levels as the second half of 2023, resulting in lower average annual prices in 2024 compared to the previous year.

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The export restrictions imposed by China on graphite toward the end of 2023 may create some supply disruptions and longer lead times in 2024, especially during the winter season when Chinese graphite production is reduced. However, we expect the price impact to be limited, given the low demand and high inventory levels. The natural graphite market will also face more competition from synthetic graphite in 2024.

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Market Outlook and Investment Implications:

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The battery materials market is facing a challenging year in 2024, as supply and demand dynamics remain uncertain and unfavorable. Despite the gradual recovery of EV sales, the demand for battery raw materials is not strong enough to absorb the excess capacity that was built up in the previous years.

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The oversupply situation is putting downward pressure on prices across the battery materials, and forcing some producers to reduce costs, merge or integrate vertically. The market will also experience high volatility, as inventory levels fluctuate, supply disruptions occur and new capacity comes online.

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Moreover, the battery materials market will have to navigate through various external factors that could affect its performance, such as economic slowdown, geopolitical conflicts, trade disputes, shipping delays and supply chain restructuring. We anticipate that low prices, weak demand and pessimistic sentiment will discourage capital investment in the battery materials market in 2024. This will have a negative impact on the diversification and expansion of supply chains outside China.

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Conclusion:

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This academic paper provides an in-depth exploration of the battery materials market in 2024, highlighting the impact of oversupply and macroeconomic challenges. By examining key elements such as EV sales, lithium, cobalt, manganese, nickel, and graphite dynamics, the paper offers valuable insights into the current state of the industry. The anticipated weak price environment, persistent volatility, and potential investment implications are crucial considerations for stakeholders navigating the complex landscape of the battery materials market in 2024 and beyond.