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Structural changes will be needed in the lithium industry to make it sustainable in the long term. More mining looks like the only short-term option to meet growing demand, but this runs the risk of derailing the EV industry’s environmental credentials. Hard rock lithium mining requires large amounts of water and can release up to 15 tonnes of CO2 for every tonne of lithium produced. Extracting lithium from brine deposits, while emitting less CO2, requires more water, and this process often takes place in parts of the world where water is scarce.
Environmentally friendly methods of lithium extraction from geothermal brines are being explored in the UK, Germany and the US. While we see increased focus on this direct lithium extraction (DLE) methods, we question how quickly this can ease the supply constraints expected in the market in the next few years. We currently do not expect lithium from DLE to offer any serious tonnages into the market until much later this decade.
Lithium is not the only raw material where supply is forecast to be under serious pressure to meet projected demand – securing enough nickel will also be a headache for battery manufacturers.
Rystad Energy expects nickel-based battery chemistries to hold the largest share of the market by 2030, slightly ahead of iron-based batteries, with other solutions trailing far behind these two main groups. Limited access to nickel could throw a spanner in the wheels of this forecast, however, as the battery industry has to compete for supply with other growing industries like steelmaking – and at the same time, miners are not finding enough new nickel deposits of the quality needed for battery production. As a result, automakers and battery manufacturers may have to seek out alternative battery chemistries to meet demand.
Nickel-intensive batteries are the batteries of choice of many Western manufacturers due to their high energy density combined with a lower proportion of cobalt. Cobalt is mainly mined in the Democratic Republic of Congo, where poor ESG (environmental, social and governance) credentials make it an unattractive choice for car manufactures.
Nickel is mined in two forms – sulfides and laterites – and is further divided into Class 1 nickel with a nickel content of more than 99%, and Class 2 with a nickel content below 99%. Around 70% of Class 1 nickel comes from the less abundant sulfide deposits, with the rest is extracted from limonite laterite deposits using a process called high-pressure acid leaching (HPAL). Battery manufacturers require a very high grade of nickel as their input, i.e. Class 1 nickel grades only – the Class 2 nickel is not suitable for batteries due to the higher iron content and is used by other industries such as stainless steel. This means that less than half of the global nickel supply is suitable for battery cathode manufacturing.
Unlike other key battery raw materials used for cathodes such as lithium, the battery market is not the dominant end user for nickel in the short term. The stainless-steel industry accounts for more than 70% of current global nickel demand, with the battery market making up less than 10% of global nickel metal demand in 2020, according to our estimates
Nickel metal demand from the stainless-steel industry is expected to keep growing at about 5% per year, while the growth in demand for batteries is poised to explode. In an unconstrained supply scenario, batteries alone could require more than 2 million tonnes (Mt) of nickel metal by 2030, compared to last year’s total global supply of about 2.3 Mt.
This surging demand from the battery market will place huge pressure on the nickel supply chain in less than a decade. When the forecast demand from the battery market is added to the growth of nickel supply required by established industries such as stainless steel, we expect the nickel market will find itself with a deficit of supply before the middle of this decade, based on known mines and projects and their development plans (Figure 3).