The energy sector is largely shifting away from carbon-based fuels and towards renewable alternatives, with the green battery boom being an especially salient example of this trend.
As the name suggests, battery metals are key components of electric vehicle (EV) batteries, and as this sector continues to grow these commodities are quickly becoming critical raw materials. What metals are in batteries? Investors have likely already heard about lithium and cobalt, the darlings of the EV industry, but other common battery metals include nickel, graphite, manganese and vanadium.
Among the battery metals Australia produces, lithium reigns supreme. In fact, the country is the world’s largest supplier of this popular metal. Cobalt, graphite and manganese are also part of the lithium-ion battery market, while vanadium can be used to create vanadium redox batteries.
Read on to learn why battery metals represent a growing investment opportunity and to find out about the important role Australia plays in the global battery metals landscape.
Are battery metals a good investment?
Many experts believe that as the transition to greener forms of energy continues, the market for battery metals will continue growing in importance. More and more governments are committing to net-zero emissions targets and setting deadlines to move solely to electric vehicles, meaning that the need for battery metals is likely to continue rising for years to come.
For example, Dimension Market Research forecasts that the value of the lithium battery market will rise at a CAGR of 21 percent over the next decade to reach US$470.5 billion by 2033.
While it might seem like countries such as China and the Democratic Republic of Congo (DRC) have cornered the markets for production of various battery metals, Australia presents a great opportunity for investors as a formidable contender in the space due to its top position in the lithium market and its up-and-comer status in cobalt and vanadium mining.
What drives prices for battery metals like lithium and cobalt?
While battery metals are sometimes grouped together, it's important to remember they each have their own individual drivers and characteristics that investors should know about before entering the sector.
For example, the lithium market is expected to remain oversupplied in 2024 alongside weak EV demand as economic uncertainty cuts into sales. Other key drivers could include production decisions of top lithium miners, such as Albemarle (NYSE:ALB), Chile’s SQM (NYSE:SQM), China's Ganfeng Lithium (OTC Pink:GNENF,SZSE:002460) and Australia's Pilbara Minerals (ASX:PLS,OTC Pink:PILBF). For 2024, Australia's lithium production is likely to decline as the country's lithium miners have already begun to curb production rates in response to the lower price environment.
Benchmark Principal Consultant Cameron Perks expects the supply overhang will be short-lived and the sector will enter a deficit period that should lead to higher prices for lithium.
Much like lithium, cobalt’s value is contingent on the EV market’s success. Despite demand for battery metals currently outweighed by oversupply, cobalt is likely to continue capitalising on the global push toward greener energy. Graphite, too, is largely dependent on the renewable energy market, as it used to make both solar panels and EV batteries. Geopolitical factors could also affect graphite’s valuation, as China accounted for about 77 percent of production worldwide in 2023.
The manganese market is largely propelled by demand for steel, with 90 percent of manganese output used to make ferroalloys. The other 10 percent includes products such as electrolytic manganese metal and manganese sulphate monohydrate, the latter of which is used in lithium-ion batteries and fertilizers. As the EV and energy storage sectors grow, and new high-manganese battery chemistries enter the market, manganese demand from the sector is likely to rise in the coming years.
As with manganese demand, nickel demand is also primarily tied to stainless steel, although its value as a key battery material is gaining traction. Australia is the world's sixth largest nickel producer. Low nickel prices brought on by supply overhang and rapidly increasing supply from Indonesia has led to a curtailment in operations at several nickel facilities in the country since December 2023, including First Quantum’s (TSX:FM,OTC Pink:FQVLF) Ravensthorpe nickel operation in Western Australia.
Vanadium, another China-dominated metal, is also used to manufacture steel, particularly for construction. In 2024, vanadium production will likely continue to be driven by steel demand, including in the thriving aerospace industry. However, batteries are likely to account for more vanadium demand over the next few years as vanadium redox batteries gain traction.
How to invest in battery metals in Australia?
Although the production of many battery metals is dominated by Chinese mining companies, Australia has gained a solid foothold in the battery metals market, creating many investment possibilities.
As mentioned, Australia is the world’s top producer of lithium and is home to the world’s largest lithium mine, Greenbushes. The Western Australia-based hard-rock asset is controlled and operated by Talison Lithium, a joint venture between China’s Tianqi Lithium (SZSE:002466) and Australia’s IGO (ASX:IGO,OTC Pink:IPGDF) that owns 51 percent of Greenbushes. Albemarle owns the other 49 percent stake.
While output from Greenbushes is processed into lithium hydroxide at its hydroxide plant, several key Australian lithium miners produce significant amounts of spodumene concentrate, an important source of lithium.
Mineral Resources (ASX:MIN,OTC Pink:MALRF) owns the Mount Marion and Wodgina lithium operations through 50/50 joint ventures with Ganfeng Lithium and Albemarle, respectively. Upgrades completed in 2023 have raised Mount Marion's annual plant capacity to 900,000 tonnes. Although MinRes is prioritizing its iron production while lithium prices are low, the company announced in March that it plans to build a lithium processing hub in Western Australia with a hub and spoke model.
Additionally, Pilbara Minerals owns the Pilgangoora lithium-tantalum project, which produces around 360,000 tonnes of spodumene concentrate per year. Pilbara is working on its P680 expansion project, which will bring output to 680,000 tonnes by March 2025.
There's also Liontown Resources (ASX:LTR,OTC Pink:LINRF), which is on track to begin first production at its Kathleen Valley lithium project in mid-2024. The company has offtake agreements in place with South Korean-based LG Energy Solution (KRX:373220) and car manufacturers Tesla (NASDAQ:TSLA) and Ford (NYSE:F) for its spodumene concentrate.
When it comes to cobalt in Australia, the largest producer is mining giant Glencore (LSE:GLEN,OTC Pink:GLCNF), which produces the blue metal as a by-product at its Murrin Murrin nickel-cobalt mine. Cobalt Blue Holdings (ASX:COB,OTC Pink:CBBHF) is working to bring its Broken Hill cobalt project into production, which will produce cobalt directly at the site instead of extracting it as a by-product of nickel.
Currently, the DRC accounts for about 68 percent of all cobalt production, but Australia is fast emerging as a viable competitor. Additionally, Australia presents a more sustainable and ethical alternative to the DRC, due to human rights and child labour issues for miners in the DRC.
For those interested in graphite in Australia, Renascor Resources (ASX:RNU,OTC Pink:RSNUF) is developing its Siviour graphite project and received a AU$185 million loan facility in April from the federal government to support the development. Additionally, EcoGraf (ASX:EGR,OTCQX:ECGFF) is working towards creating a global battery anode material supply chain. While its material would be extracted in Tanzania, Ecograf is developing a product qualification facility in Australia.
In addition to First Quantum, another top nickel company in Australia is Ardea Resources (ASX:ARL), which is developing the Kalgoorlie nickel project and Goongarrie Hub in Western Australia and is currently preparing its definitive feasibility study. In April, Ardea announced it plans to form a 50/50 joint venture with a consortium made of Sumitomo Metal Mining (TSE:5713) and Mitsubishi (TSE:8058). The consortium will fund the definitive feasibility study as part of its earn in for the 50 percent interest, among other requirements.
While there are no vanadium producers in Australia as of yet, investors could consider looking to Australian Vanadium (ASX:AVL), which merged with Technology Metals Australia in February to become the nation's largest publicly traded vanadium developer. The company is developing its Australian Vanadium project and ultimately aims to supply vanadium redox flow batteries using its material.
Australia is the world’s third largest producer of manganese, so this battery metal is another top pick for shrewd investors. ASX companies with manganese exposure include mining major South32 (ASX:S32,OTC Pink:SHTLF), Black Canyon (ASX:BCA), Element 25 (ASX:E25) and Firebird Metals (ASX:FRB).
This is an updated version of an article first published by the Investing News Network in 2022.
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Securities Disclosure: I, Matthew Flood, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Australian Vanadium, Firebird Metals and Element 25 are clients of the Investing News Network. This article is not paid-for content.
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