Volatility continues in energy metals despite sluggish demand from battery producers. Brazil and China are well positioned to replace Russian OCTG production and supply national oil companies in the Middle East.
Due to the volatility in energy metals and the impact on supply chains and electric vehicles, we have started to include analysis across the entire supply chain. Any feedback on the content below is extremely welcome.
OCTG
China has the largest share in seamless OCTG market in the Middle East.
OCTG imports to the Middle East from Russia have already been severely reduced, while sanctions on Russia have put trade with it at risk.
Moreover, the API certificate has been removed from Russian mills. Ukraine's steel industry is practically suspended due to the ongoing war.
It is expected that China and Brazil might have an increased presence in the API OCTG market and could partially fill the void left by a lack of Ukrainian and Russian material in the market as a result of the disruption caused by Russian invasion of Ukraine.
Higher demand for Asian OCTG may drive prices up further.
Despite concerns in China about lower steel demand on the back of new lockdown measures, domestic demand for OCTG should stay strong and support both domestic and export prices as it is planned to increase oil and gas drilling in China to bolster its energy security and insulate itself from volatile global commodity markets.
China’s goal to achieve carbon neutrality by 2060 will require its steelmakers to cut production further, and this may limit export OCTG volumes and keep prices rising.
Despite skyrocketing prices in Europe on the back of a raw material supply crunch and rising energy costs, NOCs in the Middle East are ready now to pay for securing supply of OCTG, even reconsidering long term agreement terms to meet their drilling programs.
European mills have plenty of OCTG on their orderbook currently, seeing good demand from the North Sea region and huge interest from US customers after the removal of tariffs.
We believe, in case of new interesting OCTG opportunities arise from the Middle East, European mills could shift some capacity out of other products to increase OCTG production.
- Marina Bozkurt, senior analyst
Battery materials supply chain
Volatility of nickel prices on the London Metal Exchange (LME) continued to stall the spot activities for nickel sulfate, meanwhile the cautious sentiment has been spread to the cobalt market as well, resulting in thin trades for cobalt sulfate.
This stagnancy is estimated to last potentially for one to two months given the benchmark metal prices for both nickel and cobalt are still at comparatively high level whereas buying appetites remained sluggish amid consumers’ caution and recent Covid infection spikes in China.
In addition, the second quarter traditionally sees weak consumption for consumer electronics batteries. For instance, the order for lithium cobalt oxide cathode, which is typically used to produce consumer electronics batteries, averagely dropped by 10-20% for April compared to previous months.
That said, spot offer prices for both nickel sulfate and cobalt sulfate have experienced little change.
Similarly, spot price for battery-grade lithium carbonate has changed little since last week, consolidating around 500,000 yuan ($78,400) per tonne in domestic Chinese market.
In the meantime, the price for battery-grade lithium hydroxide continues to catch up with that of lithium carbonate, resulting in a minimal price gap between the two lithium compounds in the domestic Chinese market.
Such dynamics are seen in the seaborne Asian market where prices for both compounds sitting around $70 per kg.
Market wise, the gap between EV battery installation and production has widened in China since the beginning of this year, with total installation dramatically dropping in January and February this year compared to the previous months in the fourth quarter last year.
That said, it is quite common to see higher EV battery installation in China around the end of the year with all OEMs attempting to hit the EV production target, and low installation during China holiday season in the first quarter each year.
Meanwhile, ongoing infection spikes in the country might temporarily curb the buying appetites for EVs.
Nevertheless, for the long term, the supply chain is optimistic about the EV take-off and intends to secure the relevant battery materials as much as possible.
For instance, China battery materials producer GEM has increased supply of its NCM/NCA precursor to ECOPRO BM in 2023-2026, from 650,000 tonnes to 700,000 tonnes.
- Susan Zou, Senior Analyst
Electric Vehicles
Tesla Motors officially began production in its Berlin Gigafactory from last week which is expected to initially produce Model Y as it looks to alleviate pressure from its factories in China and the US.
The effect of Tesla’s limited supply locations became further apparent when the Shanghai Gigafactory had to shut down due to a lockdown on account of COVID resurgence in the region.
The company sees an initial production run-rate of 2,000 vehicles per week but would have to increase this output substantially in order to achieve its annual production target of 500,000 vehicles from the plant.
Nevertheless, the plant is a welcome addition for the company to fulfil demand and order backlog in the European region and continue to gain market share on its competitors.
Volkswagen AG last week announced the location of their third cell manufacturing facility to be in Valencia, Spain.
Expected to begin production in 2026 with construction to begin by the end of this year, the plant will have an annual production of 40 GWh and is part of the company’s plan for six gigafactories by 2030, with a combined production of 240 GWh annually.
Stellantis, Mercedes-Benz and TotalEnergies/Saft signed a deal to become equal partners in Automotive Cells Company (ACC) with a target to increase ACC’s production to at least 120 GWh by 2030.
In addition, ACC will be building its third production site at Stelanntis’ existing plant in Tremoli, Italy. Stellantis has set large electrification targets for 2030, expecting 100% of its sales in Europe and 50% in the US to be BEVs by 2030, which would bring annual BEV sales in 2030 by the company to 5 million.
Stellantis has also planned to invest over $5 billion CAD ($4 billion USD) along with LG Energy Solutions for the first battery manufacturing facility in Canada.
The plant, to be situated in Ontario is expected to begin production from 2024 and have an annual production of around 45 GWh.
Chinese automaker BYD announced a JV with Shell that will see them expand charging infrastructure in China.
The partnership will see them install and operate a network of more than 10,000 charges in the Shenzhen region initially.
The region is mainly known for its large network of EV buses, most of which are being operated by BYD. Shell has targets to operate over 500,000 charging points globally by 2025, from its existing 80,000.
- Abhishek Murali, analyst
