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Update on world status and trends for critical raw materials World Materials Forum 2017
29 June 2017
David Trafford CEO, Consulting
Recap 2016: Prospective Study on some critical materials World Materials Forum 2017
2
Risk of mineral scarcity still low
● A super-cycle like the one seen in the 2003-2013 period is not expected to return in the foreseeable future,
● Physical availability of supply is not likely to be an issue, but practical availability may be impeded
● Price “fly-ups” are expected to occur, at least for select materials, due to temporary or perceived imbalances in supply and demand
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0
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2003-13 2013-17 2017-21
Average annual growth (%) in demand from China
Steel Coal Copper Aluminium
Changing influences on demand and supply World Materials Forum 2017
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Increasing transparency, higher standards, more stakeholders
● China’s share of growth in metal demand is expected to decline from 79% in the 5 years to 2016 to 36% in the five years to 2021
● Regional instability could have a large impact on some commodities, for example, Katanga Province in the Democratic Republic of Congo supplies 5% of World copper and 59% of World cobalt
● Social pressures combined with changes in the end use demand of certain raw materials is leading to increased uncertainty around short term stability of supply
D E M A N D
S U P P L Y
Technology
Financing
Public Policies
Social acceptability
0
50
100
150
200
250
300
350
Premium hard coking coal (US$ / tonne) FOB Australia)
Impact of Legislation on price World Materials Forum 2017
4
China and Australia dominate metallurgical coal supply
1. Chinese coal mines were restricted from operating for more than 276 days/year
2. Rapid stock drawdown and physical squeeze created
3. Policy reversed 4. Delayed price reaction, then
gently declining
1
3
2
4
Impact of weather on an already constrained market World Materials Forum 2017
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Two fly-ups: public policy and extreme weather
1. Policy 2. Structure 3. Policy reversed 4. Return to ordered market
5. Cyclone Debbie hits Australia with 260kmph gusts as insurers declare a force majeure
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100
150
200
250
300
350
Premium hard coking coal (US$ / tonne FOB Australia)
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5 3
2
4
A true fly-up? World Materials Forum 2017
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A return to the market fundamentals, but constraints remain
1. Policy 2. Structure 3. Policy reversed 4. Return to ordered market 5. Extreme weather 6. Prices have settle back down as
the supply constraints have eased, again
● Reaction: traders are making changes to contract pricing, away from the spot market 0
50
100
150
200
250
300
350
Premium hard coking coal (US$ / tonne FOB Australia)
1
5 3
2
6 4
Increasing risk factor
Susceptibility to a fly up in price World Materials Forum 2017
Exo
geno
us
• Public policies
• Social acceptability
• Weather
• Capital availability
• Technology change
High
Low Low High
June 2017 Snapshot
• Geology • Geography • Ownership structure • Routes to market • Distribution and marketing
Endogenous
Cobalt
Copper
Nickel Lithium
Zinc
Iron ore
Met Coal
7
Incr
easi
ng ri
sk
Nickel overview World Materials Forum 2017
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Geographic spread, low growth, low risk of fly-up
● Medium term outlook for demand is impacted by low growth in China
● Current supply story dominated by nickel in pig iron
● Lack of investment in low price environment leads to forecast of future deficits but
● High level of stock reduce nickel’s vulnerability to political shocks
Demand growth
Concentration of supply
Mineral scarcity Country risk
Supply gap (in 2025)
Nickel
Application in electric vehicles World Materials Forum 2017
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High purity nickel provides demand bright spot
● Nickel sulphate, a cathodes used in batteries for electric vehicles, to show a dramatic rise
● Increase: o thermal stability o energy density
● Reduce o Weight o Cost (as substitute for cobalt)
● Nickel contained to increase from 50k tonnes to 200k tonnes by 2025 0
50
100
150
200
250
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Nickel sulphate (thousands of tonnes of nickel metal contained)
Nickel in Lithium ion batteries
Lithium overview World Materials Forum 2017
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Cooperation needed to build strong supply industry
● Lithium ore deposits o hard rock “spodumene” or o salt “brine” deposits
● Abundance indicates low risk of supply gap in 2025
● Australia, Chile and Argentina dominate supply with a few large producers
● Geographic concentration but low level of country risk
Demand growth
Concentration of supply
Mineral scarcity Country risk
Supply gap (in 2025)
Lithium
Lithium Demand World Materials Forum 2017
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Demand driven by policy. Substitution risk low
● Demand forecasts being revised upwards
● Strong demand growth forecast average CAGR 8.3% 2016 - 2025 o 13.3% in batteries o 3% in industrial
● Batteries dominate o 63% of market in 2025 o Electric vehicles (2/3rds)
● Industrial applications not impacted by higher prices
* Lithium carbonate equivalent
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50
100
150
200
250
300
350
400
450
500
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Lithium demand by end use sectors (thousands of tonnes of LCE*)
Glass & Ceramics Lubricating greases Other Industrial
Portable Electronic Devices Other eTransportation EVs
Energy Storage
Lithium supply demand balance World Materials Forum 2017
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Existing producers to dominate. Limited room for new entrants.
● Hard rock vs brine ● Speed to market ● Scalability ● Marketing / off-take
arrangements ● Note existing operations which
are in ramp up phase
0
100
200
300
400
500
600
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Lithium supply and demand forecast (thousands of tonnes of LCE*)
Exis0ngopera0ons
Expansions
Commi:ed
Probable
Possible
Demandforecast
* Lithium carbonate equivalent
Positive outlook for lithium prices World Materials Forum 2017
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Volatile outlook as industry learns to live with high growth rates
● Strong demand growth will support prices and encourage capital investment
● Rising share of production from hard rock mines will increase long run marginal costs
● Balance will be volatile as delays drag on supply and lumpy new production comes on stream
● Research and development likely to increase economically available deposits
4 000
4 500
5 000
5 500
6 000
6 500
7 000
7 500
8 000
8 500
9 000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Lithium carbonate equivalent (US$/tonne, nominal)
40%
Cobalt - the metal we can’t live without World Materials Forum 2017
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Sustained volatility, continued higher prices, political concerns
● Strong demand growth forecast average CAGR 5.3% 2016 - 2025 o 6.2% in chemicals (batteries) o 3.8% in industrial
● Cobalt story not all about demand ● Supply has interesting features
with markedly different geological and political background
● Source – no primary Cobalt also major factor
Demand growth
Concentration of supply
Mineral scarcity Country risk
Supply gap (in 2025)
Cobalt
10
12
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22
24
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28
30
05-juil.-16 05-août-16 05-sept.-16 05-oct.-16 05-nov.-16 05-déc.-16 05-janv.-17 05-févr.-17 05-mars-17 05-avr.-17 05-mai-17
Cobalt (99.8%) price (US$ / lb)
A fly up in the cobalt price was predictable World Materials Forum 2017
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When is a fly up the start of a trend?
● Cobalt has performed strongly in 2017
● A number of factors lead to the fly up in price o Publicity o Technical squeeze o Interest of speculators
Data: CRU
Incremental steps throughout H2 2016 as the market moves into a small
deficit
Tesla Gigafactory commences production and hedge funds enter
market to purchase metal
Multi-commodity prices increases following the US
election result
Refineries hold back material and end-
consumers attempt to secure material
Sumitomo has issues with Ni content in high
grade metal
Hedge funds enter
market
Market fundamentals have changed World Materials Forum 2017
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Higher prices are here to stay
70%
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22
24
26
28
30
Cobalt (99.8%) Price US$ / lb
$0
$5
$10
$15
$20
$25
$30
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Average Annual Price of Cobalt (US$/lb)
Nominal prices EU Co 99.3% min (DDP)
Summary on Nickel, Lithium and Cobalt World Materials Forum 2017
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High growth end market; very different fundamentals
● Nickel’s hangover continues o Battery demand a bright spot o Politics will become increasingly important
● A demand led boom in cobalt and lithium ● Lithium can react o Speed of deployment of capital a concern
● Cobalt can’t react o demand likely to be tempered by substitution o risk of fly-ups remains high
● Individual political decisions can still have a huge impact on the existence and duration of temporary fly ups
● Long term political trends will have a much bigger impact on demand
Exogenous
Policy / Politics
Technology
Finance
Weather
Endogenous
Industry structure
Supply Chain Linkages
Supply response
Geology
Conclusion on Political and Social Responsibility World Materials Forum 2017
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Policy will be the greatest driver of demand changes
● Increasing impact of policy on demand ● Citizens health will be a significant driver ● Tools to be used by governments come in various categories o Encourage vs deter
● Industry will need to determine the solution ● Supply side needs to work with industry to ensure no shortages and
that long term sustainable supply is developed
D E M A N D
S U P P L Y
Technology
Financing
Public Policies
Social acceptability
CRU International Limited London | Sydney | Tokyo | Beijing | Shanghai | Hong Kong | Mumbai | Toronto | New York | Pittsburgh | Sao Paulo | Santiago
Registered in England No.940750. Registered office: Charles House, 108-110 Finchley Road, London NW3 5JJ
David Trafford
CEO, CRU Consulting
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