As the desire for electric vehicles increases, the demand for battery metals like lithium and cobalt continues to rise. Will this cause a global pinch on rare earth resources? Considering all the challenges facing metal commodities (and commodities in general), it remains a distinct possibility.

Battery metals are seeing increased demand on a global level.

The Cobalt Craze and Mining Competition

China Molybdenum, a large mining company in mainland China, recently announced plans to invest in mining initiatives based out of the Democratic Republic of Congo. According to estimates, the firm plans to put a staggering USD $1.8 billion into these new efforts. The notoriously-unstable central African nation is particularly rich in minerals, boasting some of the world’s largest copper and cobalt mines. Of course, with so much cobalt sourced directly from DRC, China Molybdenum will have a firm hold on global cobalt buyers.

As with many other commodities, demand and competition for cobalt have been heavily influenced by the war in Ukraine. The subsequent sanctions on Russia have only further stressed the global cobalt trade. It’s hardly a surprise. Russia is second to the DRC when it comes to cobalt supply. As demand goes up, competition over mining resources has become quite grizzly. In fact, Russia recently announced it would go as far as to mine cobalt from sea beds if necessary.

Last week, MetalMiner published an article about Norilsk Nickel, Russia’s top cobalt producer. The company’s President, Vladimir Potanin, had just been added to the sanctioned individuals list, causing prices on the LME to shoot up 6%. When combined with ongoing sanctions, the news could mean that having more cobalt available will not benefit Russia in the short term.

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California‘s Lithium Tax Affecting Battery Metals As Well

Along with cobalt, the logistics associated with many other rare earth metals are also becoming more challenging. For instance, California recently approved a flat-rate tax on lithium. According to many industry experts, it’s a move that means big trouble for mining companies in the state.

However, not everyone feels that way. Proponents think the new tax will allow California-sourced lithium to compete on a more realistic scale. In their minds, fewer lithium imports means more state-sourced lithium, stimulating the local economy.

Petalite, petalite or castorite is an important mineral for obtaining lithium, battery industry, lithium source

Another pain point the tax addresses is how to make lithium from Chinese suppliers more affordable. Thanks to the electric vehicle boom, more and more auto manufacturers are utilizing lithium-ion batteries, and that lithium needs to come from somewhere.

For instance, since 2020, GM has been put a lot of effort toward EVs. Just last year, the company invested $71 million dollars into a brand new facility in Southern California. Of course, the new lithium tax will significantly affect this expansion, at least in the short term. In the long-run, it will hopefully alleviate the cost of Chinese lithium.

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The UK government has added Vladimir Potanin, Norilsk Nickel’s president and chairman of the management board, to its list of sanctioned individuals. The LME nickel price remains in question. A June 29 update notification from HM Treasury’s Office of Financial Sanctions Implementation (OFSI) noted Potanin’s addition. The stated reason was that he would benefit from or support the Russian government by owning or controlling Rosbank.

Sanctions are being placed on Vladimir Potanin by the UK government

“Rosbank is carrying on business in the Russian financial services sector, which is a sector of strategic significance to the Government of Russia,” OFSI said in its update. Potanin, the board chairman for Moscow-based conglomerate Interros,  holds a 35.9% stake in Norilsk Nickel. That holding group acquired Rosbank from French investment bank Société Générale back in April.

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The LME Reacts to Sanction News and Nickel Price

The market quickly voiced concerns over possible supply issues. According to reports, news of the sanctions caused nickel prices on the London Metal Exchange to jump by 6%. The base metal’s official three-month closing price was $23,158 per metric ton on June 28. According to data from the bourse, this represents a decline of 10.8% from June 21, when prices were $25,949.

The sanctions are part of the “Russian Regulations”. This information falls under the Sanctions and Money Laundering Act of 2018. According to the OFSI documents, these stipulate freezing funds and economic resources belonging to entities “involved in destabilizing Ukraine. It undermines or threatens the territorial integrity, sovereignty, or independence of Ukraine. It’s about obtaining a benefit from or supporting the Government of Russia.”

2022, Adobe Stock

The asset freeze also prevents any UK citizen or business from dealing with any funds owned, held, or controlled by the named individual. “It also prevents funds or economic resources being provided to or for the benefit of the designated person,” a government statement said. Potanin will also not be able to enter the United Kingdom or remain in the country

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A Long List of Bans and Sanctions

Norilsk, one of the world’s largest single nickel producers, accounts for approximately 7% of the global supply. Of course, Nickel’s primary application is the production of austenitic stainless steel. However, the metal’s application also extends to batteries, including those designed for electric vehicles. Platinum and palladium are also sourced heavily from Norilsk’s production. Back in May, the UK government imposed a 35% duty on all imports of the rare metals sourced from Russia or Belarus.

That same month, the UK froze the assets of London-headquartered Evraz. As a major steel manufacturer, Evraz has steelmaking and mining assets in Russia. The Financial Conduct Authority had already suspended the group’s shares on the London Stock Exchange two months earlier. This was largely due to the government’s addition of Roman Abramovich to its list of sanctioned individuals.

In March, steel and iron imports from Russia and Belarus were subjected to a 35% import duty. The move was the result of denying the two countries “Most Favored Nation” status for hundreds of their exports.

It Remains Unclear How Much Impact the Move Will Have

The LME has still not banned Russian Nickel. It’s just that the stocks from Russia are lower due to concerns over supply and logistics. So, while things might seem tight in Europe for now, there are ample opportunities to source Nickel from other places and producers.

Indonesia, for instance, has been ramping up its nickel production exponentially. This will effect its nickel price. In fact, estimates put the country’s primary production forecast for 2022 at 1.3 million metric tonnes. That’s a 52% increase on the year. Currently, primary nickel demand within Europe is forecasted at 310,000 metric tonnes for the year. This is a significant increase from 2021, when demand was 300,000. Fortunately, the LME does not require high-quality nickel for all of the nickel it pushes through.

Despite the sanctions, Norilsk Nickel will likely turn its attention towards China as a primary end-user. If demand holds up in that market, the company will not get too broken up about Potanin’s inclusion on the U.K.’s list.

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