Li-ion batteries and the years ahead

By Martim Facada
Published: Thursday, 22 February 2018

Lithium-ion batteries are set to lead the decarbonization of the world’s economy after a technological revolution in recent years. Martim Facada looks at the evolution of the battery industry and its relationship with the most critical raw materials: lithium, cobalt, nickel and graphite.

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Tesla Model S cars charging their battery with the
Tesla supercharger station near Shenzhen sport
arena, 15 November 2016. 
iStock
 

Sparked off by the Tesla effect and Elon Musk’s ambition to replace the world’s internal combustion engines (ICEs) with electric vehicles (EVs), the EV industry has experienced unexpected yet rapid growth over the past three years. 

Confounding the expectations of many, China, Japan and South Korea have become the world’s production hub and the centre of the EV revolution, with the likes of Panasonic, LG Chem, SK Innovation, CATL, BYD, Umicore and Nichia Corporation sustaining the rapid growth in the world’s battery and new energy vehicle (NEV) sectors.

Sales and production of NEVs in China in 2017 of 794,000 units and 777,000 units respectively were up 53.8% and 53.3% on the previous year, according to the China Association of Automobile Industry Information Department (CAAM). 

As well, sales and production of pure EVs in China rose 81.7% and 82.1% respectively last year to 478,000 units and 468,000 units.

China dominates the NEV market and is set to dominate the world battery market both in production and capacity, according to James Frith, energy storage analyst at Bloomberg New Energy Finance (BNEF). 

"China is where the EV market is really expanding and developing due to domestic consumption and favorable government policies, which are supporting the fast growth of this market," James told Industrial Minerals. 

World battery capacity will more than double to 320 GWh per year by 2021 from 116 GWh at present, according to Blomberg New Energy Finance. It predicts China to account for 216 GWh of that capacity by 2021, which would be 70% of global capacity (see graph 1).

China is the world's leading automaker, having led the rankings in each of the last nine years. CAAM expects total production of NEVs in China to surpass 1 million units in 2018. 

Graph 1: Mass contribution to lithium-ion batteries 
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Source: Bloomberg New Energy Finance 

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13th Five-Year Plan

The Chinese battery industry’s strong performance has largely been supported by generous subsidies set by the 13th Five-Year Plan, established in 2015 by the Party Central Committee and the State Council, to develop, innovate and restructure the Chinese automobile industry. 

The main aim of this plan is to increase NEV production in the coming years to reduce pollution in the country. This process starts with the establishment of a solid and sustainable domestic battery industry that aims to produce 2 million NEVs by 2020. 

According to Bloomberg, Chinese authorities may have spent close to 83 billion yuan ($13.24 billion) in 2016 and 2017 in subsidies for NEVs, quoting the secretary-general of the China Passenger Car Association, Cui Dongshu, up from 59 billion yuan in 2015, Yang Yusheng, a member of the Chinese Academy of Engineering, told the Securities Daily. 

But central and local governments have since 2016 been gradually phasing out these subsidies, as predicted by the 13th Five-Year Plan, with the aim of consolidating the Chinese battery industry by changing the status of state help from necessary to auxiliary, without hampering the NEV manufacturers' performance. 

In line with the Chinese authorities’ goal of creating and consolidating a sustainable NEV sector, the new 2018 subsidy policy aims to encourage the production of high-performance batteries and vehicles with long ranges while providing fewer or no subsidies to NEVs with lower ranges and battery densities. 

Industry observers expect an end to subsidies to NEVs with a range lower than 150 km while the threshold of battery energy density eligible for subsidies will rise to 140wh per kg from 90wh per kg in 2018. 

The new subsidy policy is also likely to foster the development of li-ion batteries with higher nickel content by potentially supporting the development and production of the likes of NMC 532, 622 and NMC 811 li-ion batteries.

Total subsidies (both local and central governmental) to battery electric vehicles (BEVs) with a duration distance of 150-250 km in China fell 48.6% to 54,000 yuan in 2017 from 90,000 yuan in 2016, while for hybrid electric vehicles (HEVs) above 50 km total subsidies fell 21.59% to 36,000 yuan from 60,000 yuan year on year. 

Although the Chinese authorities have not yet released the 2018 NEVs subsidy policy, various Chinese battery manufacturers expect further reductions in subsidies this year.

Graph 2: Mass contribution to lithium-ion batteries 
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Source: Bloomberg New Energy Finance 

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Li-ion batteries 

Conceived as far back as the 1970s, li-ion batteries have grown in importance throughout the 21st century despite the higher upfront cost compared with other types of rechargeable batteries such as lead acid batteries. 

Higher efficiency in charge and discharge, cycle life and voltage as well as a lower environmental impact have increasingly made li-ion batteries the battery of choice for NEV use. 

The li-ion battery family comprises six main commercialized types of battery cathodes: nickel cobalt aluminium (NCA), nickel manganese cobalt (NMC), lithium manganese oxide (LMO), lithium iron phosphate (LFP), lithium titanate (LTO) and lithium cobalt oxide (LCO).

These six types are characterized by the charge and discharge process during which ions move from the negative electrode (anode), composed of graphite, to the positive electrode (cathode), which is typically made of lithium, cobalt, nickel, manganese or aluminium, depending on the cathode’s composition.

Breaking down which type of battery is used by what company: LFP batteries are used by Chinese car manufacturer BYD in its plug-in hybrid (PHEV) vehicles BYD Tang, BYD Qin PHEV and full electric vehicle BYD e6; NCA batteries are used by Tesla in Tesla full electric vehicle Models S and X; LMO and NMC batteries are used by Nissan in its full EV Nissan Leaf and by Renault in its full EV Renault Zoe; NMC batteries are used by BMW in its fully electric BMW i3 BEV and by Chevrolet in its PHEV Chevrolet Volt, according to IVL Swedish Environmental Research Institute 2017 paper The Life Cycle Energy Consumption and Greenhouse Gas Emissions from Lithium-Ion Batteries

Despite the wide variety of li-ion batteries used by car manufacturers, NMC batteries, which are a combination of LCO, LMO and nickel, according to the MOBI Research Group Cost Projection of State of the Art Lithium-Ion Batteries for Electric Vehicles Up to 2030 research paper, are becoming popular among NEVs due to their lifespan, high energy density and good performance compared with LFP batteries, which are characterized by a lower energy density, or NCA batteries, which have a lower lifespan. 

Among the different types of NMC batteries, the likes of South Korean battery producers Sk Innovation and LG Chem are favoring the recently introduced NMC 622 battery, used by Renault in its Renault Zoe model, against the already commercially well-established NMC 111 and NMC 532. The latter is one of the most commercialized NMC battery cathodes in China.

NMC 811 batteries also appear on many different automotive roadmaps due to their superb energy content, according to CellPress research paper Lithium-Ion Battery Supply Chain Considerations: Analysis of Potential Bottlenecks in Critical Metals.

Yet concerns related to the safety and lifespan of NMC 622 and 811 batteries have deterred some NEV manufacturers from adopting this type of cathode chemistry for now. 

Efforts to extend the range of electric cars and improve battery performance are leading major NEV and battery manufacturers to develop the NMC li-ion battery technology further. 

For example, Tesla and Jeff Dahn, a professor in the Department of Physics & Atmospheric Science and the Department of Chemistry at Dalhousie University, recently set up a research partnership to develop NMC battery cells. Their aim is to double the lifetime of the battery cells in Tesla products while increasing energy density and reducing costs.  

Also, BYD has confirmed that in 2018 it will introduce NMC 532 li-ion batteries in the company’s E5 450, QingEV 450, SongEV 450, and YuanEV 360 NEV models, demonstrating the company’s move away from LFP li-ion batteries - one of the most common types that Chinese NEV manufacturers use.

Meanwhile, Ningbo Jinehe New Material Co, Beijing Easpring Material Technology Co and Ningbo Shanshan produce NMC 622 battery materials. 

SK Innovation and LG Chem also aim to introduce NMC 811 batteries to the market between 2018 and 2019, which experts consider to be the most advanced version of NMC batteries. 

SK Innovation supplies batteries to NEV manufacturers such as Mitsubishi, Mercedes Benz and Hyundai Motors, LG Chem supplies batteries to the likes of General Motors, Renault, Volvo and Hyundai while Panasonic supplies Tesla. 

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Choosing the most environmentally friendly options from
electric, hybrid and diesel vehicles.
iStock 

Graph 3: cobalt low-grade free market $ per lb in warehouse 
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Source: Metal Bulletin 

Adoption of NMC batteries and technology change 

The production and use of NMC 532, 622 and 811 li-ion batteries by Tesla, SK Innovation, LG Chem, BYD and others could speed up the world’s adoption of this type of battery cathodes. The introduction of NMC 811 batteries will help extend the range of electric cars up to 500 km and will also help develop new batteries that can provide a range of more than 700 km by 2020, Lee Jon-ha at SK battery research centre said, according to the Korea Times

Extending a NEV’s driving range per single charge is one of the main aims of battery and NEV manufacturers because range anxiety remains a major issue for consumers and a constraint in the mass adoption of EVs. 

The development and use of NMC 532, 622 and 811 batteries by different producers are propelling the li-ion battery industry to reduce cobalt content while increasing the nickel content in the new NMC battery technology. 

This technological change in an NMC battery cathode’s chemistry could drive production costs lower given elevated cobalt prices at present while improving overall battery performance and increasing the EV battery life span, driving range and safety. 

The chemistry change in mineral content from NMC 111, composed of one part nickel, manganese and cobalt, to NMC 811, composed of eight parts of nickel, one part of manganese and one part cobalt, is noticeable. 

Comparing the high cobalt content in li-ion battery cathodes such as LCO with NMC 532, 622 and 811, the cobalt content in NMC 532 and 622 batteries has fallen by around 80% to 12%. For NMC 811 batteries, cobalt content has fallen by 90% from 60% to 6% cobalt content (see graph 2). 

The roadmap for li-ion batteries in the next 10 years is an open discussion, however. The speed at which the major battery manufacturers introduce the high nickel NMC li-ion batteries (or other li-ion batteries) alongside new generation batteries such as solid state batteries will determine which technology or technologies will prevail over then next year (see table 2).

Graph 4: Lithium carbonate battery grade Chinese spot market
prices vs large biannual EU and US lithium carbonate
prices 
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Source: Industrial Minerals 

Graph 5: Nickel three-month LME Daily Official $ per tonne
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Source: LME 

Raw Materials

Cobalt 

Of the li-ion battery raw materials swept up in the EV and battery industry boom, the prices of cobalt and lithium have risen furthest. One problem, often acknowledged by cathode and battery makers, is that higher cobalt prices are pushing battery manufacturers toward reducing the amount of cobalt in their batteries. 

One other problem affecting cobalt is the supply chain in the Democratic Republic of Congo (DRC) due to political instability as well as the use of child labor in artisanal mining, which has increased the international scrutiny. 

Although most of global cobalt production comes from the DRC, cobalt typically arises as a byproduct of copper or nickel mining operations. So these metals drive cobalt supply rather than the cobalt price itself. 

This is a major constraint to the increase of global cobalt production. 

Cobalt is mainly mined across the copper belt in Africa, crossing areas of the DRC and Zambia, although it is also mined in Morocco and Madagascar, among other places. 

The rapid increase in demand for cobalt since 2015 alongside production constraints have triggered a rapid increase in its price, exacerbated by fears of a supply bottleneck and the fact that the DRC makes a large contribution to world cobalt production.

The involvement of investors - who have actively locked away material for speculative purposes - has also contributed to the rise in cobalt years over the past two years.

The cobalt low grade free market in-warehouse monthly average price increased 280% to $37.7 per lb on January 3, 2018 from $9.90 per lb on December 9, 2015, according to Metal Bulletin (see graph 3). 

While the ratio of nickel to cobalt in battery cathodes can increase, the current most-used chemistries cannot completely do without cobalt. The future of this metal depends on improvements to its supply chain.

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The presentation of zero emission electric bus
BYD K9 on the bus show in Kielce Poland, 
19th September 2013.
iStock
 

Graph 6: Chinese spherical graphite exports (Jan-Sep, Kg, $) 
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Source: Industrial Minerals and Chinese Customs 

Lithium 

The lithium supply chain also struggles to meet battery sector demand; however, in contrast to cobalt, there are many lithium resources across the world in both brine or hard rock forms but the vast majority of these remain undeveloped. 

Contrary to popular assumption, starting lithium brine pools or mines is an incredibly lengthy process - from scratch, new lithium mining projects can take 10 years or more before production starts. Expanding lithium mining projects that are already operating (either brine ponds or mines) can take a year or two before the material reaches the market, if not more in some cases. 

Global production of lithium carbonate equivalent (LCE) in 2016 was around 189,900 tonnes, below estimated demand of 200,000 tpy of LCE, according to Industrial Minerals Research Global Lithium Market: Five Year Strategic Outlook.

LCE demand will treble to around 600,000 tpy by 2026, falling short of expected LCE supply of 379,800 tonnes that year, according to the Industrial Minerals outlook report.

The rapid and unexpected increase in demand for lithium compounds in 2016 sent prices soaring while lithium suppliers struggled to, or could not, meet demand. 

Lithium prices increased 296.5% between October 2015 and June 2016. The lithium carbonate (Li2CO3) spot price, ex-works domestic China more than tripled to an average of $27 per kg in June 2016 from $7.70 per kg in October 2015.

In January 2018, the lithium carbonate (Li2CO3) battery grade average spot price, ex-works domestic China remained strong at $24.93 per kg. 

European and US lithium contract market prices increased, catching up with the price movement in the Chinese lithium carbonate spot market, the price driver of the world’s lithium contract and spot prices. 

In Europe and the United States, lithium carbonate contract prices increased 169.2% to $17.50 per kg in January of 2018 from $6.50 per kg in June 2015 (see graph 4).

As well, robust battery demand has kept the price of lithium hydroxide monohydrate (LiOH.H2O, min 56.5%) - reputedly one of the preferred lithium compounds for use in car batteries - around and above $20 per kg over the past year.

In China, the lithium hydroxide monohydrate (LiOH.H2O, min 56.5%) battery grade average spot price, ex-works domestic China stands at 150,500 yuan ($23,570) per tonne as of February 1, while the average spot price for the same day in Europe and US on a delivered duty paid (DDP) basis was $20.50 per kg, according to Industrial Minerals.   

China and Australia should to play a bigger role this year in the lithium supply chain, while SQM and Albemarle’s production expansion plans in the following years could reinforce Chile’s role as the world’s leading producer.  

Tightness of supply for other key battery raw materials such as cobalt, in addition to a shortage of processing capacity, could pose a threat to lithium demand despite the booming battery market.

Furthermore, a bottleneck in the conversion of Li2O spodumene into lithium carbonate in China, where most of the world’s lithium hard rock production flows, is an added fear for nvestors and for the lithium industry, George Cheverley, a portfolio manager at Investec, told Industrial Minerals. 

In contrast to the cobalt supply chain, the traditional lithium producers capable of producing battery-qualified grade lithium carbonate (Li2CO3) or lithium hydroxide monohydrate (LiOH.H2O) have production facilities in politically stable countries such as Chile, Argentina, Australia, China and the US. 

Yet even though different metal exchanges are interested in setting up a lithium contract, similar to the cobalt contracts established by the London Metal Exchange, futures or speculative trading of lithium remains quite a remote concept for the lithium industry. 

Nickel

Producers and consumers of nickel expect EVs to support the physical nickel market in the coming years; however, an uptick in demand from battery producers has not yet surfaced. 

A spark in demand is expected anywhere from two years in 2020 to a decade from now. Still, EV-related should continually tick higher over the coming years.

"EVs will continue growing slowly in the next couple of years. After 2020 it might go faster," one nickel trader in Europe told Metal Bulletin. 

Hype surrounding EV demand helped push the LME three-month nickel price to around $12,850 per tonne during LME Week last year, its highest in two years. It hit a fresh peak late in January 2018, nearing $14,000 per tonne on a weak dollar (see graph 5).

Nickel producers and consumers believe that EV and battery demand could keep the nickel market humming in the coming years. 

Graphite

Graphite remains the primary component of the lithium battery anode in mainstream battery chemistries (LMO, LFP, NCM, NCA) in use today, and can also be found in minor volumes in the cathode as a conductivity enhancement additive.

While China produces almost all spherical graphite (SG), several non-Chinese market participants are looking to move into this segment in the coming years. China is also the single largest exporter of SG - it ships the material in its uncoated form predominantly to destinations including South Korea and Japan where the coating is applied. Chinese exports of coated SG are, in comparison, much lower.

As of 2015, batteries had a 10% share of the total graphite end-market by application. This will increase to 17% by 2021, according to Industrial Minerals Graphite Handbook forecasts.

Refractories and metallurgy (for carbon-raising applications) remain the largest end markets for graphite, with another share taken by lubricants, parts and other products.

Until recently, the status quo in SG was of oversupply. 

Chinese regional governments had been encouraging widespread production of both uncoated and coated spherical material from local companies to serve the battery sector. This encouraged the domestic graphite industry, which is diffuse and dominated by small firms, to seek in greater numbers to benefit from the tax breaks and favorable conditions. 

Demand from battery makers had not increased as rapidly, leading to a situation of large material supply that end markets could not absorb. In turn, this brought about a progressive decrease in SG prices. 

The Chinese spherical 99.95% C, 15 microns fob price moved down to a monthly average of $2,475 per tonne in January 2018 from an average price of $2,750 per tonne in October 2015, according to Industrial Minerals. 

Last year, however, was different. A government-led environmental drive aimed at reducing industrial pollution targeted the graphite industry among many others, with widespread inspections, limitations and shutdowns of graphite operations.

On the demand side, meanwhile, the market finally started to display some traction for graphite for battery use, at least in traded volume terms.

Chinese exports of SG (including both uncoated and coated material) rose 12% to 28,860 tonnes in January-September 2017 from just above 25,000 tonnes a year earlier. This is the second year in a row of increasing volumes (see graph 6).

But in revenue terms the picture is not as rosy - the value of exports fell 7% to $91.11 million in January-September from $97.63 million a year earlier.

This seems to show that graphite is only just starting to benefit from the recent growth in interest from the EV industry while the prices of the other leading battery raw materials have surged.

Large-scale battery production facilities set to consume large volumes of graphite output as the main anode component. Taking Tesla’s Gigafactory in Nevada as an example, which is expected to output 35 GWh per year by 2020, Industrial Minerals Research estimates the plant would consume an equivalent of 100,000 tpy of flake graphite (assuming the flake to spherical yield rate is below 50%).

Overall, the battery market represents the single largest potential driver of growth for graphite in the coming years. Until now, however, this has been a gradual and long-term adjustment rather than a rapid surge.