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* Electric cars boost demand for lithium, cobalt, graphite
* Depressed steel markets to hold back manganese demand
* GRAPHIC-Lithium ion batteries-tmsnrt.rs/2cNq1mw
By Jan Harvey
LONDON, Oct 5 Electric cars such as the Nissan
Leaf may look no different from the standard family runaround.
But the new materials that go into them could revolutionise the
market for metals used in the industry, opening up a new field
for commodities investors.
"We identified electric vehicles as an area where we are at
an inflection point for demand," said Duncan Goodwin, portfolio
manager of the Baring Global Resources Fund.
Around 12 percent of the fund's $378.2 million in assets is
exposed to materials that are used in electric vehicles. It has
investments in New York-listed Albemarle and Australia's
Orocobre, two companies producing lithium, a key
element in electric car batteries. Shares in both companies have
risen sharply this year.
Governments, keen to push growth in electric cars in a bid
to meet their carbon emissions targets, are tempting consumers
with perks like subsidies, free parking and tax breaks. Growth
in the market is in turn creating an opportunity for commodities
investments currently estimated at $235 billion.
But it is not a simple one-way bet.
Predicting how much of any metal will be needed to meet
demand for electric vehicles in the longer term is tough and
advances in battery technology could alter the mixture.
Getting drivers to adopt electric cars remains a challenge -
the need to charge them up frequently and time taken to do so
have put off many potential buyers.
Still, concerns over the pollution created by diesel-powered
vehicles mean that electric car prototypes dominated the Paris
car show last week.
The number of electric and hybrid vehicles on the road
worldwide surpassed 1 million last year, according to the
International Energy Agency.
While estimates vary, IHS Automotive expects electric
vehicles to represent nearly 4 percent of all light vehicles
worldwide by 2020, equivalent to 3.9 million cars, up from just
over 14,000 in 2010.
So what sits below the bonnet in these vehicles?
Most electric car batteries use lithium nickel manganese
cobalt oxide (NMC) cathodes and graphite anodes. "Rare earth"
metals dysprosium, neodymium and terbium, chiefly mined in China
by companies including Xiamen Tungsten and China
Minmetals Rare Earth Co, are used in some electronic
components of the motor.
"It's clear that electric cars from today's point of view
will have lithium ion-based batteries," said Horst Friedrich,
director of Germany's Institute of Vehicle Concepts.
"We're talking about lithium, and... metals like cobalt,
iron phosphate, rare earth elements."
Much of the world's lithium comes from an area called the
"Lithium triangle" in Chile, Argentina and Bolivia.
Mining it is an increasingly lucrative business.
Prices of battery grade lithium in China, the biggest
lithium ion battery producer, surged to above $20,000 a tonne
this summer, nearly three times higher than a year earlier, as
"The lithium industry is going from 160,000 tonnes of LCE
(lithium carbonate equivalent) today to at least 260,000 tonnes
by 2020," said Simon Moores, managing director of Benchmark
Albemarle is investing an undisclosed sum to boost its
production of battery-grade lithium salts to try to supply half
of that projected demand growth, said John Mitchell, the
president of Albemarle's lithium unit.
Australia's Lithium Power International is
preparing its Maricunga Salar project in northern Chile to be
able to ship lithium directly to China for use in electric
vehicles, and aims to be in production by 2019-2020.
Australian rival Orocobre, whose share price has
risen by more than 50 percent this year, has nearly completed a
scoping study with the aim of at least doubling production
capacity over the next two years at a facility in Argentina.
Among South American companies, Chile's SQM
announced this month that it was investing $30 million to boost
its lithium hydroxide capacity by 7,500 tonnes.
"The market penetration of electric vehicles in the
automotive market will have a significant impact on lithium
demand," it said.
Critics caution against expecting shortages of lithium as
there is an abundance of it in the earth's crust. Others warn
against jumping too quickly into smaller companies that may not
produce the high grade lithium needed for the batteries.
"It's very much buyer beware, it's a fast-moving market, and
there is a large degree of ignorance about it," Finntech analyst
Martin Potts said, adding that graphite could be more
interesting for investors.
China dominates the sector for graphite, used in anodes.
Benchmark Mineral Intelligence expects 150,000-170,000 tonnes of
extra anode grade graphite will be needed by 2020, worth an
extra $1.125-1.275 billion.
Canada's Eagle Graphite said while the impact of
electric vehicles on its business is still to be felt, when
global production hits around 1 million cars per year, the draw
on graphite supplies will become significant.
"The more forward-looking manufacturers are rightly becoming
concerned about long term supply," its CEO Jamie Deith said.
"Not only is there the question of producing enough graphite,
but the fact that China accounts for 100 percent of natural
graphite anodes today is an additional concern."
"The battery industry has to diversify sources."
Meanwhile cobalt prices COB-CATH-LON, up 16 percent this
year, are expected to rise another 45 percent by 2020. The U.S.
Defense Logistics Agency starting to stockpile cobalt compounds
highlights their importance.
Sherritt International, one of the largest cobalt
producers, said it is set to increase cobalt production at its
Ambatovy mine in Madagascar in line with nickel output.
As cobalt is mined largely as a by-product of other metals
such as nickel and copper, it is hard for producers to crank up
output in response to higher demand, it said. That lack of
supply elasticity could push prices higher.
Not all metals used in car batteries have a rosy future.
Demand for manganese, a common component in steel, is expected
to remain weak in the near term as the steel sector suffers.
Predicting how much of any given metal would be needed to
meet demand for electric vehicles in the longer term is tough
and advances in battery technology could alter the amounts.
Metals such as nickel, cobalt and manganese may not be
needed in batteries such as the lithium sulphur battery being
developed by Oxis Energy, based in the English city of Oxford.
Also in the background are green vehicle technologies, most
notably hydrogen fuel cells, being mooted as possible rivals to
batteries. But developing new technology to the point where it
can be commercialised takes time.
"We consider the risk of substitution of lithium to be very
low," said CRU Group's Julia Ralph.
Guiding the silent, top-of-the-range Leaf around a showroom
complex at Nissan London West, salesman Keith Almansury says
education is the key to driving growth in the segment.
"If people don't love electric cars, it's because they don't
know about electric cars," he said, flagging up benefits
including environmental friendliness, savings on fuel and
servicing, and free parking. "But above all, it's just a really
(Reporting by Jan Harvey; Additional reporting by Rosalba
O'Brien in Santiago, Jim Regan in Sydney; Editing by Pratima
Desai, Keith Weir, Janet McBride)