Future Facing Commodities Forum 2024: your questions answered

On 27th March 2024, Wood Mackenzie held the third annual Future Facing Commodities Forum and welcomed over 1,400 guests across our Asia Pacific and US/EMEA broadcasts. 

On the day, we explored a myriad of issues, ranging from EV demand variability, battery component and raw materials trends, nascent technology in batteries, renewables, storage and the impacts of the CBAM on aluminium.  

We provided our take on the current downturns in lithium and nickel, and our outlooks for cathode and anode, copper, manganese, vanadium and rare earth markets. We also looked at the latest hydrogen trends. 

During the event, we invited attendees to send us their questions. With battery raw material markets in the doldrums, questions regarding the EV growth story, technology change and supply competition featured heavily.  

Read on for a summary of a few of our experts’ responses to some key questions, and fill out the form at the top of the page to access many more of our answers to the most-asked questions on the day. 

Electric vehicle demand 

What is the risk that your penetration rates in Europe and the US are too ambitious? Will the recent boom of hybrid vehicles affect your forecast of EV penetration? 

Penetration rates of plug-in electric vehicles (BEVs and PHEVs) have been consistently rising year-on-year in both the US and Europe - and our forecasts are reflective of that. In this quarter, we have revised down our forecasts for EV penetration in the US, specifically in light of a rising trend towards hybrids.  

We are currently forecasting an EV penetration rate of 36% by 2030 in the US, down 4% from our forecast from last quarter. The trend is expected to primarily impact the market in the short term. However, in the long term, we are still expecting the US' new passenger vehicle market to be 75% electric by 2040. 

There are certainly risks to actual EV penetration rates, primarily when influenced by changes in government policy, and our forecasts will continue to reflect those, as and when these changes materialise. 

Battery technology impacts 

Is Na-ion a real threat to lithium-ion batteries, and what are some of the implications for raw materials? 

Sodium-ion batteries have already become a threat to lithium's use in some batteries, with several Chinese automakers and cell makers already producing and selling sodium-ion EVs. But given the lower energy density of sodium-ion cells - roughly 300 Wh/L for Na-ion versus 450 Wh/L for LFP and >600 Wh/L for NMC - substitution will primarily come from energy storage systems and low range inner city EVs.  

With over 10,000 GWh of Li-ion production capacity already announced, and only roughly 300 GWh of Na-ion, the vast majority of battery demand will be met by Li-ion over the next ten years. Our forecast for sodium ion battery supply is approximately 100 GWh in 2030, out of total EV battery supply of 3000 GWh. 

LFP variants – such as LMFP and M3P - are the next technologies to make an impact. Higher cell voltages in LMFP mean they can compete with NCM energy densities. We expect iron-based chemistries to make up around 50% of EV batteries by 2030. LFP’s rise has already impacted raw material demand - compared to an NCM811 chemistry, LFP reduces nickel demand by 0.8kg/kWh, cobalt by 0.1 kg/kWh and Lithium by roughly 0.05 kg LCE/kWh. 

Metals supply 

Is there a way to compete with the AISC that Indonesian nickel producers can make? 

The simple answer is yes. Many producers are lower in the cost curve already. It’s not so much the necessity to “compete”, but to operate in a manner that provides for a sustainable business even in the cyclical downturns which inevitably come.  

Sadly, the “west” is driven by quarterly results and dividends to shareholders which means there typically isn’t a focus on efficiency and cost cutting during high price periods. Subsequently, as the price cycle turns bearish, there is little money to spend and suppliers can struggle.  

Indonesia’s nickel potential has existed for a long time but no western company moved in to operate and develop projects. China responded on a massive scale, with huge initial capex, and is now reaping the benefits of low operating costs. 

Substitution 

Do you see a real penetration of REE-free motors? 

Despite their efficiency and size advantages, rare earth drivetrain motors do have potential for substitution. Security of supply concerns for feedstock materials and magnets have seen some companies commit to alternative motor technologies. These technologies either have a lower rare earth intensity or no rare earths at all. Alternative magnet manufacturing techniques can also be employed to lower the consumption of rare earth elements. For example, grain boundary diffusion is used to reduce dysprosium intensity in high temperature magnets. 

We expect the market share of passenger battery electric vehicles with a non-permanent magnet motor to rise from 13% currently to 30% by 2034. Ultimately, rare earth permanent magnet motors will remain the technology of choice in automotive drivetrains due to their efficiency and performance advantages. However, the competitive nature of the industry will lead to a level of diversification as OEMs look to balance cost and performance. 

Decarbonisation 

Following CBAM (The EU's Carbon Border Adjustment Mechanism), I assume that the traded price in EU will be set by the marginal cost of imported Aluminium with associated CBAM impacts. Are you predicting that in addition to the increase in price, that the price will in fact be considerably more volatile under CBAM? 

Yes, conceptually we agree. As mentioned in the presentation we expect the impact of additional CBAM costs to result in a CBAM-paid premium (on top of LME price) that European buyers of aluminium metal will have to pay.  

As buyers adjust their sources to minimise CBAM impacts, there are likely to be swings in the marginal CBAM, which would flow through to changes in the CBAM-paid premium. However, trade flows into the EU will not change wildly in our view. We see a gradual optimisation of CBAM as importers secure more volumes of low carbon metal sources over time. 

Hydrogen 

What is SOEC and why is it more expensive than PEM or AWE technologies? 

SOEC stands for Solid Oxide Electrolysis Cells, which use a solid-oxide/ceramic electrolyte rather than the liquid and polymer electrolytes of AWE and PEM technologies. SOEC is a more efficient technology than PEM or AWE due to its high operating temperature. However, the high operating temperature requires more equipment, when steam is not readily available, and the thermal stress can degrade the system more quickly.  

SOEC requires operating conditions that pair best with industrial processes that have waste heat or steam as a by-product. SOEC is currently expensive but is still scaling commercially, so there are opportunities for capex cost reductions in particular. 

Something to think about 

What will be the impact of AI (Artificial Intelligence) on inflation? 

Like any technological development, AI has the potential to expediate and automate tasks and processes, replace labour with capital equipment and improve productivity. These outcomes would have a dampening effect on inflation – provided that, in the long run, the costs of developing and deploying AI capital equipment are lower than the labour costs they replace (on a per unit of output basis).  

The differentiator for AI over other types of its general technological automation is its potential to disrupt employment in new sectors on a vast scale, as some white collar, highly skilled jobs could be replaced by machine learning technology.  

At a macro level, we think this could significantly affect long-term structural unemployment and income distribution. Capital’s share of income in an economy will rise at the expense of labour’s share. There could be unintended economic consequences if not managed and regulated appropriately. 

AI is likely to have more direct impacts on metals via additional processing power consumption, and the high copper intensity of digital infrastructure. However, there is a danger that the demand side impact is being overstated, and additional consumption potential needs to be weighed against the possible advances that digital innovation might bring to energy-efficiency and other technologies that affect metals demand.  

Learn more 

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