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Coronavirus highlights critical need for diversity in the battery metals supply chain

The problems inherent in a battery metals supply chain supremely concentrated on China have been spotlighted by coronavirus, but the problems have been in play for years. 
The bottleneck was there for all to see long before the spread of Covid-19 shuttered factories across China. 
According to a Wednesday report by the Associated Press “the problem is supply chains. China’s are famously nimble and resourceful, but they lack raw materials and workers after the most intensive anti-disease measures ever imposed closed factories [and] cut off most access to cities with more than 60 million people.”
While companies have begun to re-open, there are ongoing higher costs and significant delays. A mid-February survey by The American Chamber of Commerce in Shanghai found that 78% of businesses in Shanghai, Suzhou, Nanjing and the wider Yangtze River Delta did not have enough staff to run full production lines. 
Nearly half said their global operations had already been affected by the…

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The problems inherent in a battery metals supply chain supremely concentrated on China have been spotlighted by coronavirus, but the problems have been in play for years. 

The bottleneck was there for all to see long before the spread of Covid-19 shuttered factories across China. 

According to a Wednesday report by the Associated Press “the problem is supply chains. China’s are famously nimble and resourceful, but they lack raw materials and workers after the most intensive anti-disease measures ever imposed closed factories [and] cut off most access to cities with more than 60 million people.”

While companies have begun to re-open, there are ongoing higher costs and significant delays. A mid-February survey by The American Chamber of Commerce in Shanghai found that 78% of businesses in Shanghai, Suzhou, Nanjing and the wider Yangtze River Delta did not have enough staff to run full production lines. 

Nearly half said their global operations had already been affected by the shutdown and 58% said their output would be lower than normal until at least the second half of 2020.

Away from China

Manufacturers are looking for new suppliers but few can compete on price and almost none can match China’s levels of service.

These problems have been evident since President Donald Trump ignited the ongoing US-China trade war by imposing tariffs on imports from the trading giant. 

And shifting production away from the Chinese state and into perceived cheaper South East Asian alternatives comes with its own set of problems. 

A Wall Street Journal report written in the wake of the early stages of the trade dispute noted: “This should be Vietnam’s chance to shine. Instead it is becoming increasingly clear that it will be years, if ever, before this nation and other aspiring manufacturing destinations are ready to replace China as the world’s factory floor.

The problem is even more acute for producers and users of battery metals. 

Mitchell Smith, chief executive and president of cobalt development company Global Energy Metals (TSX-V:GEMC) told MiningMaven: “Coronavirus is having a large disruptive effect on the overall commodity marketplace as we are already witnessing large builds in stockpiles of minerals given the inability to transport and handle material at Chinese ports. The same can be said about exports of refined product.”

Gigafactory

Battery metals are key to the growth of the renewables industry: lithium-ion batteries form the basis for powering electric vehicles, for example.

And while the explosion in the number of electric vehicles is set to drive the renewables revolution, the fact is that supply chains are simply not ready to produce the number of batteries that this wholesale change will require. 

Elon Musk’s Tesla is ahead of the curve. Its $4.5 billion Gigafactory 1 in Nevada opened in 2016. Musk said at least 100 of these gigantic electric vehicle assembly lines would be needed to power the future growth of the industry.

And yet Tesla has started building its latest Gigafactory not in the United States, but in China. Tesla has struggled to recruit enough engineers in America to run operations, an issue it believes — or believed, until coronavirus broke out — could be solved by China’s army of specialists. 

Europe’s first Tesla-inspired battery megafactory belongs to Sweden’s Northvolt. That company received a €350 million loan from the European Investment Bank in May 2019 to get the project started. But this is one of only a handful being built outside China. 

In 2017, there were 17 lithium-ion battery mega-factories under construction globally. Today, 46 of the 70 in construction are in China.

Another problem

There is vast and increasing demand for refined cobalt in the manufacturing of lithium-ion batteries. But few have tracked the scarcity of these in-demand resources. According to a MassifCapital report on risks in the supply chain: “If every battery manufacturing facility under construction today is built and operates at 100% capacity, then the next ten years will see an 8x increase in demand for lithium, a 7x increase in graphite anodes, a 19x increase in nickel and a 4x increase in cobalt.

China’s domestic and foreign influence on the global cobalt supply chain also remains substantial. This dependence has already caused significant problems and industry experts expect the trend to continue. 

Mitchell Smith put it like this: “Prolonged economic disruption due to the coronavirus epidemic should make end-users in the automotive and electronics industries reflect on the over-reliance upon one country.” 

As a whole the industry desperately needs to consider diversification of supply and refinement of the materials critical for the new renewable world we will all be living in, Smith added.

Author: Mark Sheridan

The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.

MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.

MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.

MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance.

 

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